Year End Adjustments

 

1) Bad Debts are written off

  • DR bad debts 

  • CR Debtors control 

2) Consumables stores on hand → consumable stores at the end of the year that have not been used. - consumable stores not used will become an asset as consumable stores on hand, and the process will be revered at the beginning of the next financial year. 

  • DR Consumable stores on hand

  • CR consumable stores 

3) Depreciation (non-cash expense → we do not physically pay for depreciation as an expense, it is there to show the loss in value of assets) 

  • Fixed installment/straight-line depreciation 

  • Diminishing value method/ carrying value method/book value method 

    • Use carrying value amount to determine depreciation for the year 

    • Carrying value = cost price - accumulated depreciation 

    • Accumulated depreciation = sum total of all the depreciation that the asset has acquired since owned by the business 

Note: Land and Buildings do not depreciate, they appreciate. 

*An asset can never be worth R0- when depreciation an asset, the maximum value of depreciation for the year ( including accumulated depreciation) cannot be more than or equal to the value of the asset

Eg. If a vehicle is depreciated at 20%p.a. On fixed value method. Its cost Price is R35 000, the accumulated depreciation at the start of the year is R33 000. 

35000 x 20% x 12/12 = R7000 

  • But carrying value on the vehicle at the beginning is R2000 (35000-33000) 

  • Therefore max depreciation for the year can be R1999

  • Therefore the total accumulated depreciation at the end of the year is R34 999 

  • Carrying value of the asset at the end of the year will be R1 - CANNOT EQUAL 0 

 Calculating Depreciation 

Fixed instalment = Cost price x interest rate x time (months) 

Diminishing balance= (cost price -accumulated depreciation at the beginning) x interest rate x time(months ) 

= carrying value x interest rate x time 

An asset register is a record of all the tangible assets of the business, when they were bought, their price, the rate of depreciation. 

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Depreciation closes off to profit and loss just like any other expense, as does bad debts written off.

References

  • Anon., 2007. The Answer series: Grade 11 Accounting. 2007 ed. Cape Town: The Answer.

  • Anon., 2019. Investopedia. [Online]. Available at: https://www.investopedia.com/ [Accessed 3 October 2019].

  • Doctor, K., 2015. FLIPHTML5. [Online]. Available at: http://fliphtml5.com/fkul/mgtf/basic [Accessed 1 October 2019].

  • T Hall, D. W. P. S. A. A. P. G. P. F., 2017. Accounting Study Guide. 2016 ed. Musgrave: New Generation Publishers .

Neha Pillay (2019)

Grade 10Keroshan PillayComment