What does a depreciation convention determine?

Question

Options

• AThe number of periods over which a fixed asset should be depreciated
• BWhether a fixed asset should be depreciated
• CThe amount of depreciation to apply in the first and last years of a fixed asset's useful life
• DThe amount of depreciation to apply to each period of a fixed asset's useful life

• A
  8% (2)
• B
  4% (1)
• C
  4% (1)
• D
  83% (20)

Explanation

• You can select various depreciation methods and conventions. The purpose of the methods is to allocate the depreciable value of the fixed asset into fiscal periods. The depreciable value of the fixed asset is the acquisition price, reduced by a scrap value, if any. If you are using depreciation conventions and you modify the last depreciation run date for an asset, which then causes some depreciations to be skipped, the depreciation for the last year might be more than or less than is expected. The depreciation is adjusted by the number of depreciation periods affected by the modification of the last depreciation run date. For example, if you are using the Half year depreciation convention over three years, depreciation ordinarily occurs over 3 1/2 years. If you change the last depreciation run date during the 3 1/2 years, the last year of depreciation moves out the number of periods affected. If you move the date by three months, the last year will have nine months' worth of depreciation, when ordinarily there would be six months' worth of depreciation. * You can select from the following depreciation conventions. Mid month (1st of month) Mid month (15th of month) Half year (start of year) Half year (next year) * Depreciation is a periodic transaction that typically reduces the value of the fixed asset on the balance sheet, and is charged as an expenditure to a profit and loss account.

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