Depreciation and Disposal of Fixed Assets FAQs Why is it necessary to record depreciation on fixed assets? Some businesses own or lease property, for example land, buildings, machinery and so on. This type of asset has a useful life of more than one accounting period (usually many years) and must be valued at the end of each accounting period. To do this, the asset’s value at the end of the period is depreciated. How does depreciation on property differ from depreciation on other types of assets? With other types of assets, such as stock or work in progress, the only cost that needs to be transferred out is the amount used up during the accounting period. With Fixed Assets there are two costs that need to be transferred out at the end of each accounting period. Firstly, the amount used up during this period (Depreciation) and secondly, the original cost (also known as the fixed asset’s carrying value). Can fixed assets be revalued? Yes. If there has been a significant change in market value shortly before the Fixed Assets account is closed and if there has not been a previous revaluation, then the fixed asset’s carrying value may be overstated. In this case, it might be better to revalue the Fixed Assets to show their new market values at the end of the period. How are depreciation on property and accumulated depreciation treated in the income statement? A company only records the actual amount of Depreciation taken each accounting period. It will not record any provision for future Depreciation, but it will transfer to profit and loss account any gain made on disposal of a fixed asset or an account receivable through use of accelerated Depreciation methods. This is because the amount of Depreciation taken in previous accounting periods was less than that allowed for in the accounts, thus creating a future expense when compared to the original cost. How are depreciation on property and accumulated depreciation treated in the income statement? Fixed Assets are not revalued unless there has been a significant change in value shortly before they are closed. It is unlikely that the company would sell all of its Fixed Assets before the next revaluation, if they were to be sold and there was no change in value at this point, it could result in a loss on sale of these assets. About the Author True Tamplin, BSc, CEPF® Facebook Linkedin Instagram Twitter Youtube True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists. True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics. To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.