Module 7 · Advanced · 8 min read

Fixed assets and depreciation

You will be able to: Explain why an asset's cost is spread as depreciation; Work out straight-line, reducing-balance and part-month charges; Post a month of depreciation with the Depreciation Run and undo it.

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A fixed asset is something you buy to use for years, not to sell: a vehicle, a computer, furniture. Its cost is not an expense on the day you pay. It is spread over its useful life as depreciation. Each month the profit and loss takes a share, and the balance sheet carries the asset at cost less accumulated depreciation, called the written-down value.

Getting assets into Zeyto

  • An asset you buy from now on: tick Register this purchase as a fixed asset on the Asset Purchase document. The asset is created when the purchase posts.
  • An asset you owned before Zeyto: Accounting, Fixed Assets, + New Asset, with the cost and depreciation already charged. Drafts are posted once with Post Opening Assets, against Opening Balance Equity.
  • Asset Categories fix the three accounts an asset uses (cost, accumulated depreciation, depreciation expense) and give the default method, life and residual value.
The Fixed Assets register listing assets with cost, accumulated depreciation, written-down value and status.

Accounting, Fixed Assets: cost, depreciation to date and written-down value.

Accounting, Fixed Assets: cost, depreciation to date and written-down value.

How a charge is worked out

  • Straight line: (cost minus residual value minus depreciation already charged) spread evenly over the life in months.
  • Reducing balance: one twelfth of the yearly rate, applied to the written-down value each month.
  • A charge never takes the asset below its residual value.
  • The first charge covers the month that contains the Depreciation starts date, for the days from that date to the month end. A start on the 1st is a full month. Straight line then takes one extra month at the end so the full life is charged.
The Asset Categories screen showing each category with its default method, life and the three ledger accounts.

Asset categories carry the method, the life and the ledgers.

Asset categories carry the method, the life and the ledgers.
A delivery vanCost AED 60,000, residual value AED 6,000, life 60 months, straight line, starting 1 October. Monthly charge = (60,000 - 6,000) / 60 = AED 900. After October, accumulated depreciation is 900 and the written-down value is 59,100. If it started on 11 November in a 30-day month, the first charge would be 900 x 20/30 = AED 600. Under reducing balance at 20% a year, the first month would be 60,000 x 20% / 12 = AED 1,000.

The monthly run

  1. Open Accounting, Depreciation Run (also reachable from Fixed Assets).
  2. Choose the Month to depreciate. Zeyto posts it on the last day of that month.
  3. Check the table. Will be charged rows are included. Already charged rows are never charged twice. Earlier month missing means an earlier month must be posted first.
  4. Press Post Depreciation and confirm. Zeyto posts one voucher: debit Depreciation Expense, credit Accumulated Depreciation.
The Depreciation Run screen with the month to depreciate, the amount to charge, the assets listed with the result Already charged and the posted depreciation vouchers below.

Depreciation Run: check the charge, then press Post Depreciation.

Depreciation Run: check the charge, then press Post Depreciation.
  • A month that skips an earlier one is refused until you post the earlier month. Tick Catch up to post every missing month, oldest first, one voucher each.
  • To undo a month, open its voucher in the history list under the table and cancel it. A reversing entry is posted. Cancel the latest month first.
  • Fixed Asset Register, Depreciation Schedule and Asset Movement reports show cost, charges and changes over time.
TipRun depreciation before the Trial Balance. Otherwise the profit you read at month-end ignores the month's depreciation charge.
Watch outThe depreciation voucher needs an open fiscal year covering its date. A closed year refuses it, so run depreciation before you close the year.

Try it in the demo

  1. Open Accounting, Fixed Assets and set the As at date to the last day of last month. Read Cost, Accum. Depreciation and Written-down Value.
  2. Open Accounting, Asset Categories and note the three accounts of one category.
  3. Open Accounting, Depreciation Run and read the Result column. Do not press Post Depreciation in the shared demo.
  4. Work out the monthly straight-line charge of an asset from its cost, residual value and life.
Open the live demo

Public demo company, sign in as admin / demoAdmin123. Data refreshes nightly.

Key takeaways
  • Depreciation spreads an asset's cost over its life; the books carry cost less accumulated depreciation.
  • Straight line = (cost - residual) / life; reducing balance charges one twelfth of the rate on what is left.
  • The Depreciation Run posts one voucher on the last day of the month and never charges a month twice.
  • Cancel the latest month first to undo a run.

Check yourself

3 questions on this lesson. Not timed, not the exam, and you can try again. Score 60% or more, and read the lesson, to complete it.

1. An asset costs AED 12,000, has no residual value and a life of 24 months. What is the straight-line monthly charge?

2. An asset starts depreciating on 11 November (a 30-day month) with a straight-line monthly charge of AED 900. What is the first charge?

3. Running the Depreciation Run twice for the same month charges that month twice.

Previous: Accruals, prepayments and payrollNext: The Trial Balance and correcting errors

Practice questions for this module · Printable study sheet