Study Surgery

Q. If I depreciate a fixed asset for the year and the NBV calculates as nil,
do I enter this as normal in the main ledger?

Also, how likely will a nil value occur in reality? Are there assets that would be classed as having no residual value once they had been used for a set amount of time, or is it not very likely this will occur?

If you depreciate a fixed asset for the year, the double entry (in the main ledger) will be: Dr Depreciation charge (P&L) Cr Accumulated depreciation (Balance Sheet). Once the Accumulated depreciation in the accounts equals the Cost, the NBV will be Nil. However both Cost and Accumulated Depreciation will be included in the nominal ledger as both will need to be included in the fixed asset note in the financial statements.

The Cost and Accumulated depreciation will only be written out of the ledger and the accounts when the asset is scrapped or no longer in use. It is therefore quite common for assets to be included in the accounts at Nil value, as just because they have been fully depreciated it doesn’t necessarily mean they have no inherent value to the business and are not still in use.

Where you depreciate on a straight line basis, one strictly depreciates cost less residual value over the estimated useful life of the asset. However the useful life is “estimated” on a prudent basis and the asset may well be in use for longer than this. Also many businesses, for simplicity simply treat the residual value is nil.

Where you depreciate on a reducing balance basis, the annual depreciation charge falls each year and the NBV approaches nil at a decreasing rate each year – it can take ages! You will probably scrap it or lose it before you get there!