Basic Accounting
Separate depreciation and capex
What you will learn
Connect an equipment purchase with cash flow, carrying value and expense.
Straight-line depreciation = (cost − residual value) ÷ useful life
A qualifying purchase increases property, plant and equipment and uses investing cash when paid. Depreciation allocates the depreciable cost over useful life. It reduces earnings and carrying value, with no new cash payment on the recognition date. Use partial-year conventions when the asset is available for only part of the period. A fictional Nashik plant pays ₹12 lakh for a machine with ₹2 lakh residual value and a five-year life. A full year of depreciation is ₹2 lakh.
A fictional Nashik plant pays ₹12 lakh for a machine with ₹2 lakh residual value and a five-year life. A full year of depreciation is ₹2 lakh.
A qualifying purchase increases property, plant and equipment and uses investing cash when paid. Depreciation allocates the depreciable cost over useful life. It reduces earnings and carrying value, with no new cash payment on the recognition date. Use partial-year conventions when the asset is available for only part of the period. A fictional Nashik plant pays ₹12 lakh for a machine with ₹2 lakh residual value and a five-year life. A full year of depreciation is ₹2 lakh.
Where does a cash machine purchase appear on the cash flow statement?