What is depreciation in Hong Kong financial statements

Depreciation Hong Kong

Depreciation in Hong Kong company accounting allocates a fixed asset's cost over its estimated useful life. This entry for the financial statements reflects the consumption of an asset's economic benefits. It is not a tax deduction. For Hong Kong companies, depreciation is entered in the fixed asset register and charged to the profit and loss account on an accruals basis. A separate system of capital allowances applies for profits tax purposes under the Inland Revenue Ordinance; accounting depreciation is not deductible when computing assessable profits.

Depreciation Accounting Hong Kong

The Companies Ordinance (Cap. 622) requires a company to maintain accounting records sufficient to disclose its financial position. Depreciation accounting in Hong Kong follows Hong Kong Financial Reporting Standards or, for eligible companies, the SME Financial Reporting Framework and Standard. Directors choose a depreciation method that reflects the pattern in which the asset's future economic benefits are expected to be consumed, and disclose the policy in the financial statements.

Asset Depreciation Hong Kong

Asset depreciation in Hong Kong is calculated on the asset's cost or revalued amount, less its estimated residual value. The straight-line method and the reducing balance method are common. The useful life of an asset is estimated based on experience with similar assets and the expected physical wear and tear. Depreciate leasehold improvements over the shorter of the lease term or the useful life.

Hong Kong Depreciation Methods

Acceptable Hong Kong depreciation methods under HKFRS include straight-line, diminishing balance, and units of production. The company selects the method that most closely matches the asset's usage pattern. Apply the chosen method consistently from period to period unless the expected pattern of consumption changes. If the pattern changes, treat the alteration as a change in accounting estimate.

Depreciation in Financial Statements

Depreciation in financial statements appears as an expense in the statement of profit or loss. It also appears as an accumulated deduction in the carrying amount of fixed assets on the balance sheet. The directors' report accompanying the audited financial statements must disclose the depreciation method and rates used. A certified public accountant holding a practising certificate from the HKICPA audits these statements, verifying the depreciation charge against the fixed asset register. The general ledger is the source record for the monthly depreciation journal entry.