Lesson 8 of 11 · 3 min

Fixed assets and depreciation

A van or a machine is kept for years: Ledger spreads what it cost over them, a month at a time, and takes it out of the books when it's sold.

  1. Accounts → Fixed assets

    A van, a machine, the shop's racks, computers: what the business keeps and uses for years is a fixed asset. Noor Traders bought a delivery van for Rs 3,600,000.00 in July; its bill put the van in the Vehicles account. Accounts → Fixed assets lists the purchases waiting to be added: add the van from its bill, and the register knows it.

  2. What July's depreciation posted

    Depreciation spreads what it cost, less what it'll fetch at the end, over the months it's used. Straight line takes the same each month: Rs 3,600,000.00 less Rs 600,000.00 over five years is Rs 50,000.00 a month. Reducing balance, Pakistan's tax way, takes a yearly rate of what's left: 15% for vehicles and machinery, 30% for computers. The month it goes into use counts whole. Once a month has ended, Ledger posts it in one entry, a line for each kind.
  3. On the balance sheet the van stands at what it cost less the depreciation taken so far: its book value. By 30 September that's Rs 3,600,000.00 less Rs 150,000.00. A month can't be closed until its depreciation is in, and an asset added after its months were closed catches up in the first month still open.

  4. What the sale posted

    When it's sold, one entry takes its cost and its depreciation out of the books, and the difference from what it fetched is a gain or a loss. Sold for Rs 3,500,000.00 on 20 October against a book value of Rs 3,450,000.00, it made Rs 50,000.00. October takes no depreciation for it: its last month was September. Scrapped or lost, it's written off instead, for nothing.

Try it

Opens Ledger. You'll be asked to sign in first; new businesses get a free week, no card needed.

Open Fixed assets

Quick check

2 quick questions. Pick an answer and Ledgy will tell you how you did.

1. A van cost Rs 3,600,000.00 and will fetch Rs 600,000.00 after 60 months, straight line. What's a month's depreciation?
2. It's sold on 20 October. Does October take any depreciation for it?

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