Question

When we discard an asset, the first step is to "bring the depreciation up to date." What does this mean, and why do we have to do it?

Answer 1

When discarding an asset first step is to "bring the depreciation up to date".

We know that depreciation is charged at the end of the accounting period. When an asset is sold at the middle of an accounting period last depreciation that is charged on last periods accounting statement.

Hence depreciation is charged in the asset from date of last accounting period close to date of discard.

We have to do it because asset is used in the year of discard also. If this discard had not happened, depreciation would have been charged to the asset at the end of accounting period. Hence, when asset is discarded the correct BOOK VALUE as on date of discard is to be calculated for correct reporting of gain/loss on discard.