Depreciation: An allowance made to account for the wear and tear experienced by an asset over a number of years.
Depreciation Expense: The depreciation expense incurred for the period.
Accumulated Depreciation: The total cost of the asset that has been allocated to the depreciation expense since the asset was purchased. Typically the accumulated depreciation is only calculated annually, but it can be calculated more frequently.
Closing book value: Cost of the asset – Accumulated depreciation as at that point.
Residual Value: Value of the asset after its useful life has been completed.
Financial year: Each country has different rules in respect of the financial year:
- NZ - begins on 1 April and ends on 31 March
- AU - begins on 1 July and ends on 30 June
- UK/IE - begins on 1 Jan and ends on 31 Dec
Disposal: Sale of a depreciated asset.
Written down book value: The value of the asset after the wear and tear (Accumulated Depreciation) has been deducted from the initial cost price. Cost Price – Accumulated Depreciation
Helpful Tips - NZ ONLY:
When we purchase an asset, irrespective if it’s the middle or the end of the month, we will be allowed to depreciate for the full month of purchase.
As per IRD Regulations, there will be no depreciation for the asset in the Financial Year of Sale. Thus, if an asset is sold in May, then there can be no depreciation for the period 1 April - 1 May, this is because in NZ the financial year starts on 1 April.