Terms Introduced in the Chapter

The permanent, continuing and gradual decline in the book value of a tangible fixed asset due to use, wear and tear, passage of time or obsolescence; in accounting, the systematic allocation of an asset's d …

The part of an asset's cost that is written off over its life — the original cost of the asset less its estimated net res …

The total cost of acquiring, installing and commissioning an asset — its invoice/purchase price plus freight, insurance in transit, installation, registration and any other cost of p …

The period over which a depreciable asset is expected to be used by the enterprise, or the number of units of output expected …

The reduction in the value of a natural/wasting resource (mines, quarries, oil wells) as its stock is extracted; given the same accounting t …

The loss of an asset's usefulness because it has become out-of-date — due to technological change, improved production methods or a change in market demand — even though it …

The writing-off of the cost of an intangible asset (patents, copyrights, trademarks, goodwill) over the period of its utility, similar to deprec …

The estimated amount expected to be realised from an asset at the end of its useful life, net of the co …

The book value of an asset after deducting the depreciation charged up to date; under the WDV method depreciation is a fixed percentage of this reducing balance, so the …

A method that writes off an equal amount of depreciation every year, computed as (cost − salvage value) ÷ useful life; the annual charge is a fixed perce …

An account opened on the sale/discarding of an asset (usually a part of it) to bring together its original cost, accumulated depreciation and sale proceeds in one place, so the profit or …

A separate account in which the depreciation of each year is collected instead of being deducted from the asset account, so the asset continues to appear at its original cost while the total deprec …

An amount charged against profit to provide for a known liability or an expected loss whose amount is not known with certainty (e.g. provision for depreciation, for …

An appropriation of profit set aside to strengthen the financial position of the business or to meet an unknown future liability; unlike a provision, it is made out of profits …

A reserve created out of capital profits (such as profit on sale of a fixed asset or premium on issue of shares) and not normally available for …

A reserve created out of revenue (trading) profits that are otherwise available for distribution as dividend; it may be a general reserv …

A revenue reserve set aside for no specific purpose, available to strengthen the general financial position of the business; also …

A reserve created for a particular, defined purpose, such as a dividend equalisation reserve or a debenture redemption reserve, and use …

A reserve that does not appear in the balance sheet — created by understating assets or profits (e.g. by charging excess depreciation or over-providing for doubtful debts) so that the true financial …

A provision, calculated as a percentage of debtors, created by debiting the Profit and Loss Account to cover the expected loss from debtors who may not pay; also called provis …