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Depreciation on the income statement

L

lyndsay_turner

Member
Can somebody confirm whether the following is correct:

Cost of Sales = Cost of Stock + Wages/Salaries - Depreciation of Non-Current Assets

This is what is in the notes and has been used in numerous exam questions except on one occasion in the September 2005 paper question 20 where depreciation is added to Cost of Stock and Wages/Salaries.

Logically I think it would be correct to add depreciation of NCAs to cost of stock and wages because this makes up the Cost of sales which is subtracted from revenue.

Have I misinterpreted the notes?:confused:
 
Im fairly confident that you add the depreciation to the cost of stock used and the wages/salaries.
 
Yep, I agree. The depreciation charge is added to the cost of sales as this is the charge for the cost of the underlying asset written down over the life of the asset (ie purchase of premises) so that it is not charged in one year, but say over 10, and can be written down against the annual revenue produced from the use of the asset. Therefore it makes sense to add it as a cost of sale, ie subtract it from the sales/revenue.
 
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