UK Fixed Asset Depreciation - Balance Sheet and P&L

[KittyKat8]

Hello,

This is my first time in asking a question on the Forum. I hope someone can help.

I have started a new position within a manufacturing company and one of my tasks is to clean up the fixed asset register and reconcile it against the nominal.

1) Does the amount at the end of year in the Depreciation code in the Balance Sheet match with the Depreciation code in the P&L? I would expect it to agree, but what would be the reason for if it doesn't agree?

2) If we received a grant for software ie APP Software. How would this be treated as an asset?

Any help would be much appreciated.

Thanks

 

[Fidget]

1) The P&L depreciation code should match the 'in year' depreciation code on the balance sheet. If it doesn't, then it's likely that either one side of the depreciation charge has been posted to the wrong account at some point, or that something completely different has been posted to either of the depreciation codes in error (which means the account that it should've gone to will be out as well).

If they don't match, then as a starting point to identify where the discrepancy is will be to use the fixed asset schedule to work out how much depreciation should've been charged for the period you're looking at. That should guide you to which account has the error in it.

2) This really depends on the type of grant - whether there's conditions attached to it that have to be met, or if any of it is repayable. Assuming that there are no conditions attached to it and it is not repayable, the asset is capitalised as normal, and the amount of the grant is put in a deferred income account in the balance sheet.

The asset is depreciated as normal, and the grant is released to the P&L (as a credit to the P&L) using the same method and over the same time as the asset is being depreciated. The effect of this is that the grant credit to the P&L will offset the depreciation charge to the P&L either in full or in part, depending upon whether the grant was for the full amount of the asset, or just some money towards it.

Probably worth pointing out that a grant is basically a contribution to the cost of something. So regardless of what type of grant it might be, the amount of the grant itself is never capitalised.

 

[KittyKat8]

1) The P&L depreciation code should match the 'in year' depreciation code on the balance sheet. If it doesn't, then it's likely that either one side of the depreciation charge has been posted to the wrong account at some point, or that something completely different has been posted to either of the depreciation codes in error (which means the account that it should've gone to will be out as well).

If they don't match, then as a starting point to identify where the discrepancy is will be to use the fixed asset schedule to work out how much depreciation should've been charged for the period you're looking at. That should guide you to which account has the error in it.

2) This really depends on the type of grant - whether there's conditions attached to it that have to be met, or if any of it is repayable. Assuming that there are no conditions attached to it and it is not repayable, the asset is capitalised as normal, and the amount of the grant is put in a deferred income account in the balance sheet.

The asset is depreciated as normal, and the grant is released to the P&L (as a credit to the P&L) using the same method and over the same time as the asset is being depreciated. The effect of this is that the grant credit to the P&L will offset the depreciation charge to the P&L either in full or in part, depending upon whether the grant was for the full amount of the asset, or just some money towards it.

Probably worth pointing out that a grant is basically a contribution to the cost of something. So regardless of what type of grant it might be, the amount of the grant itself is never capitalised.

Most informative. Thank you. That explains a lot and the areas I have to look into.