Depreciation... How to handle it


We just had some new lights installed at cost of £1k. I want to depreciate this cost over the next year on a monthly basis (so £83.33 per month).

What is the best way to do this on a month basis? Is it to record the expense to a nominal account in the balance sheet (£1k) and then every month journal across the amounts to a P&L nominee account (£83.33). Until the £1 balance sheet total is fully used up (12 months).




I would do it this way:

  1. When you pay/paid for the lights,

Debit: Account Code 0040 - Furniture and Fixture with £1,000
Credit: Account Code 1200 - Current Account (Bank) with £1,000

This records the payment made out of the bank account and records the lighting in the asset at cost account.

  1. At the end of each month, make a journal to record the depreciation amount.

Debit Account Code 8002 - Furniture/Fittings Depreciation (Expense Account) with £83.33
Credit: Account Code 0041 - Furniture/Fixture Depreciation (Asset account) with £83.33

Account codes 0040 and 0041 are balance sheet accounts.

Account 0040 records the asset at cost at the time of purchase.
Account 0041 is an accumulated depreciation account which records the depreciation on the asset(s) listed in account 0040.

When you produce your year end balance sheet, the value of the accumulated depreciation in account 0041 is deducted from the purchase price/value of the asset when bought (account 0040) to leave you with a current book value of the assets (lighting).

Account code 8002 is a P&L account and records the cost of depreciation as an expense to the business during the trading year.

Hope this helps - feel free to private message me if needed.

1 Like

Hi @darrell_j_freeman,

Why are you wanting to write them off over a year? Generally speaking, capital items (which this would appear to be) are identified by the fact that they are expected to last longer than a year and are written off accordingly. Plant & equipment would often be depreciated over 3-5 years.
If they’re only going to last a year, then the expense is not capital and should be written off straight to the profit & loss account in one go, under something like repairs and maintenance.

Are you a sole trader or ltd co?

Depreciating over a longer term does not disqualify the expenditure from being claimed as AIA on your tax return.