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Class XI- Depreciation

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Published in: Accounts
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This presentation is related to Accounting for Depreciation.

Kunal K / Delhi

5 years of teaching experience

Qualification: CA (ICAI - 2018)

Teaches: CA - CPT, Accountancy, B.Com Tuition, Financial Management, Indirect Tax

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  1. ?X sseD uone!(öldea
  2. Meaning of Depreciation Depreciation means a fall in the value of an asset because of- Usage or With efflux of time or Due to obsolescence or Accident.
  3. Depreciation is charged on all fixed assets except land. The reason is that unlike other fixed assets lil
  4. Just for knowledge Standard-6, 'Depreciation Accounting Accounting" issued by 'CAI, deals with accounting for depreciation. As per AS-6, Depreciation is not applicable on following items:- Forests, plantations and similar regenerative natural resources. ing assets including expenditure on the r and extraction of minerals,
  5. Objective of providing Depreciation To show the Asset fbe
  6. Factor of providing sset Factor of providing Depreciation
  7. Depreciation and other related terms Depreciation & Depletion Depreciation and Obsolescence Deprecation and Amortisation
  8. Original (HistoricaD Cost of the Asset Original Cost= Purchase price + Freight + Installation Cost
  9. Estimated Residual or Scrap Value It is an estimated sale value of the asset at the end of its economic life to the firm. Estimated Useful life Physical life is not important-an asset may still exist physically but may not be capable of producing goods at a reasonable cost.
  10. Methods of Recording Depreciation Method I When Dep. is Charged or Credited to Assets A/c Methods of Recording Depreciation Method Il When Provision for Depreciation or Accumulated Dep. A/c is maintained
  11. Method I When Dep is charged or Credited to Assets ALC Journal Entries:- Depreciation A/c Dr. To Assets A/c (Being the Dep on asset charged.) Profit & Loss A/c Dr. 2. To Depreciation A/c (Being the Dep transferred to Profit & Loss A/c)
  12. Method Il When Provision for Dep/Accumulated Dep To Provision for Dep A/c A/c is maintained. Journal Entries:- Depreciation A/c (Being the Dep on asset charged.) Profit & Loss A/c 2. Dr. Dr. To Depreciation A/c (Being the Dep transferred to Profit & Loss A/c)
  13. Methods of Depreciation Insta Methods of Depreciation
  14. Just for knowledge Others Methods of Dep. Other Methods of Depreciation Annuity Method Production Unit Matiide Hour Bßth•oöf years of Metho
  15. Straight Line Method Simplest Way Equal amount Written off eqesp;ægive equal utility through
  16. Merits of SLM Methods Accurate results Simple to Apply
  17. Demerits of SLM Method Ignores Repair & Maintenance Assets fully written off
  18. Computation of Dep under SLM Method Example 1: If asset costs Rs. & Rate of Dep is 10%. Rs. 50,000/- will be written off each year. The assumption under this case is that the life is 10 years and that at the end of 10 years there will be no scrap value. Example 2: if asset has residual value at the end of the year Rs. 50,000/- & No of years of expected life is 10 years. Amount of Depreciation= Cost-Residual Value/Scrap Value No. of years of expected life 500 000-50 000 10 =Rs. 45,000/
  19. Written Down Value Method Under this method, Depreciation is charged at a fixed rate on the reducing balance method. (i.e. Cost-Dep). Formula Oust for lcnowledge) I-n s/c*100
  20. Computation of Dep under WDV Method Example:- A Ltd. acquired a machine on 01st April, 2014 at cost of Rs. 90,000/- and spent Rs. 10,000/- on installation. Rate of Dep=1 0% p.a. Company follows accounting year. Calculate Dep for 5 years.
  21. Merits of WDV Method Consider Repair & Maintenaoænue charge is uniform Method is accepted by Income
  22. Demerits of WDV Method Assets can remain in the books even aftdfdoæpédsset can never be Zero
  23. SLM vs. WDV method SLM Method 1. Dep is calculated on Original Cost of a fixed asset. 2. The amount of Dep remains the same for all years. 3. The balance in the Asset A/c will be zero at the expiry of working life of asset. 4. Easy to Calculate the rate of Depreciation 5. The combined cost on account of Dep and repairs is lower in the initial years and higher in the later ars. WDV Method 1. Dep is calculated on the WDV of fixed asset 2. The amount of Dep reduces year after year. 3. The balance in the Asset A/c will not reduce to Zero. 4. Difficult to calculate the rate of Depreciation. 5. The combined cost on account of depreciation and repairs remains, more or less, equal throughout the period.
  24. Sale of an Asset When Sale of an Asset
  25. When Dep is charged or Credited to Asset A/c Journal Entries Cash/ Bank A/c.. Profit & Loss A/c... To Asset A/c ..Dr (Sale Price of Asset) ..Dr (Loss on Sale of Asset) (Book Value/WDV of Asset) To Profit & Loss A/c (Profit on Sale of Asset) (Being Asset sold) Note: There will be either profit or loss on sale of Asset. Either Profit & Loss A/c will be debited or Credited. Both Debit & Credit of Profit & Loss A/c is not possible.
  26. When Provision for Dep/AccumuIated Dep A/c is maintained. Journal Entries Cash/ Bank A/c.. Profit & Loss A/c... Provision for Dep A/c To Asset A/c ..Dr (Sale Price of Asset) ..Dr (Loss on Sale of Asset) Dr (Dep on asset sold charged till date) (Book Value/WDV of Asset) TO Profit & LOSS A/c (Profit on Sale of Asset) (Being Asset sold)
  27. Asset Disposal Account An account to which the balance in Asset A/c is transferred. Also, the amount received on sale is credited to the account and the profit resultant loss is or transferred to the Profit & Loss Account.
  28. Test your knowledge-True/FaIse Depreciation can not be provided in case of loss in a financial year. Depreciation is the process of valuation of asset. The main objective of charging Depreciaiton is to calculate the correct profits. Under the Straight line method (SLM), the Depreciation is charge is constant every year.
  29. 5. Depreciation is charged only on Fixed assets except land. 6. Depreciaiton is decline in the market value of tangible fixed assets. 7. Under Diminishing Balance Method, Depreciation is calculated on the Original cost of the asset. 8. Depreciation is the non-cash expense.
  30. Depreciation-Advance Study (to be studied at Higher level-B.Com, CA IPC, CA Final) AS-6, "Depreciation Accounting" Change in the method of Depreciation (from SLM to WDV or vice-a-versa).
  31. Thank you

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