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05/05/2023

What is defined as Depreciation?
The term depreciation refers to an accounting method used to allocate the cost of a tangible or physical asset over its useful life. Depreciation represents how much of an asset's value has been used. It allows companies to earn revenue from the assets they own by paying for them over a certain period of time.
Because companies don't have to account for them entirely in the year the assets are purchased, the immediate cost of ownership is significantly reduced. Not accounting for depreciation can greatly affect a company's profits. Companies can also depreciate long-term assets for both tax and accounting purposes.
Assets such as machinery and equipment are expensive. Instead of realizing the entire cost of an asset in year one, companies can use depreciation to spread out the cost and match depreciation expenses to related revenues in the same reporting period. This allows a company to write off an asset's value over a period of time, notably its useful life.
Companies take depreciation regularly so they can move their assets' costs from their balance sheets to their income statements. When a company buys an asset, it records the transaction as a debit to increase an asset account on the balance sheet and a credit to reduce cash (or increase accounts payable), which is also on the balance sheet. Neither journal entry affects the income statement, where revenues and expenses are reported.
At the end of an accounting period, an accountant books depreciation for all capitalized assets that are not fully depreciated. The journal entry consists of a:-
• Debit to depreciation expense, which flows through to the income statement
• Credit to accumulated depreciation, which is reported on the balance sheet

Types of Depreciation
There are several methods that accountants commonly use to depreciate capital assets and other revenue-generating assets. Usually, these are two types of Depreciation methods:-
i) Straight-Line Method
ii) Reducing Balance Method

i) Straight-Line
Using the straight-line method is the most basic way to record depreciation. It reports an equal depreciation expense each year throughout the entire useful life of the asset until the entire asset is depreciated to its salvage value.

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03/05/2023

What is the Definition of Annual Financial Statements (AFS)?
Annual Financial Statements (AFS) is defined as the end of year report on an entity’s financial performance. Annual Financial statements are prepared on a going concern basis unless management intends to wind up the entity’s operations under the accrual basis of accounting.
The fundamental purpose of financial statements is to provide information to the stakeholders useful for making economic and financial decisions about the business.
The Annual Financial Statements (AFS) comprises of a following reports:-
i. Statement of Financial Position (Formerly known as the Balance Sheet)
ii. Income Statement
iii. Statement of changes in equity
iv. Cash flow statement
v. Notes to the financial statements

i) Statement of Financial Position (formerly known as the Balance Sheet)
The Statement of Financial Position presents the financial position of an entity at a specific point in time. Accordingly, IAS 1 “Presentation of Financial Statements” requires the presence of the following items on the face of the balance sheet as a minimum requirement:-
• Assets: Including Non-Current Assets such as property, plant and equipment, intangible assets, financial assets, assets held for sale, deferred tax asset, and current assets such as inventory, receivables, cash, and cash equivalents.

• Liabilities: Including financial liabilities, deferred tax liability, and current liabilities such as trade payables and provisions.

• Equity: Including share capital, retained earnings, and minority interest.

ii) Income Statement
The income statement is prepared to report the entity’s financial performance during the financial year. The accounting could be the calendar year or fiscal year, depending upon the accounting policy followed by the entity.

iii) Statement of changes in equity
A statement of changes in equity (also referred to as statement of retained earnings) is a business' financial statement that measures the changes in owners' equity throughout a specific accounting period. The statement of changes in equity:-
 The amount of profit and loss attributable to the shareholders.
 Transactions made with equity shareholders include the issue of new shares, the amount of dividend paid, and the balance of the reserves and surplus.
 The corrections made concerning errors made in the past.
 In the case of any changes made in accounting policies, the disclosure about the effect of the change on financial statements.

iv) Cash Flow Statements
All entities that prepare their annual financial statements in line with International Financial Reporting Standards (IFRS) or International Accounting Standard (IAS) must present the Cash Flow Statement as part of Annual Financial Statements. The Cash Flow Statement reports the changes in the cash and cash equivalents during the year due to operational, financing, and investing activities.

v) Notes to the Annual Financial Statements (AFS)
Notes to the financial statements are an integral part of financial statements and include:-
 Specific policies are used as per Generally Accepted Accounting Policy/International Financial Reporting Standards (IFRS).
 Accounting estimates.
 Details of all the amounts disclosed on the face of the Balance Sheet and Income Statements.

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28/04/2023

What is the definition of Value - Added Tax (VAT)?
Value Added Tax (VAT) is the extra tax that is added to the products/services of Registered Companies of Value-Added Tax (VAT) of which would be payable to the Eswatini Revenue Services (ERS).

In comparison to the other tax categories in the Eswatini Revenue Services (ERS), this tax is different due to the percentage of 15% being added on top of the service item that qualifies for Value-Added Tax (VAT).
There are two options for Companies to register for Value-Added Tax (VAT) in the Kingdom of Eswatini:-

i) Voluntary Registration of Value - Added Tax (VAT)
Voluntary Registration of Value - Added Tax (VAT) is the application process of Value - Added Tax (VAT) at the request of the company.

ii) Mandatory Registration of Value - Added Tax (VAT)
The Mandatory Registration of Value - Added Tax (VAT) is a company that is required to register for Value - Added Tax (VAT) at the Eswatini Revenue Services (ERS) due to the company surpasses the threshold of E500, 000.00.

For example, if you buy an apple at E2.00 and sell it for E3.00, an amount of E1.00 will added as a service item of which can deducted for Value - Added Tax (VAT). Since the Value Added Tax (VAT) should be deducted at 15%, the Value - Added Tax (VAT) charged for the purchase of apple (E2.00 x 0.15) is 30 cents and the Value - Added Tax (VAT) charged for the sale of the apple (E3.00 x 0.15) is 45 cents.

The process of preparing and submitting the Value - Added Tax (VAT) returns may be a tedious exercise as the Eswatini Revenue Services (ERS) would verify the Value Added Tax (VAT) returns submitted. It would be highly recommended that a qualified and registered accountant should be utilized to ensure all your Value Added Tax (VAT) is in order.

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