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PPT On Depreciation

Home > PowerPoint Slides > PPT On Depreciation
Published in: ACCOUNTS
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  4. ACCOUNTING STANDARDS The statements of code of practice of the regulatory accounting bodies that are to be observed in the preparation and presentation of financial statements. The Institute Of Chartered Accountants Of India (ICAI) has formnulated and issued, the following 28 accounting standards referred to as Indian Accounting Standards or IAS. The Accounting Standard (AS) 6, "Depreciation Accounting", issued by the ICAL
  5. AS-6: DEPRECIATION ACCOUNTING According to accounting standard (AS 6) "Depreciation is a measure of the wearing out, consumption or other loss of value of a depreciable asset arising from use effluxion of time or obsolescence through technology and market changes."
  6. DEPRECIATION CAUSES By contrast By expiry of time By obsolescence By depletion Permanent fall in price By abnormal factors NEED • For determination of net profit or net loss. For showing asset at fair and true value in the balance sheet. Provision of funds for replacement of assets. Ascertaining accurate cost of production. Distribution of dividend out of profit only. FACTORS Total cost of the asset. Estimated useful life of the asset. Estimated scrap value. Chances to obsolescence. Addition to assets. Legal provision.
  7. CAUSES INTERNAL CAUSES: WV ear and tear Depletion EXTERNAL CAUSES: Obsolescence Passage of time ACCIDENT PERMANENT FALL IN PRICE
  8. NEEDS Deterlnination of net profit or net loss. Showing assets at fair and true value in the balance sheet. Provision of funds for replacelnent of assets. Ascertaining accurate cost of production. Distribution of dividend out of profit only. Avoiding over paylnent of incorne tax.
  9. FACTORS IN DETERMINATION OF DEPRECIATION Original cost of fixed asset i ee-9 purchase price plus freight and installation expenses. Estimated amount of expenditure on repairs during the useful life. Estimated useful life of asset after which it will be discarded. Estilnated residual or scrap value. Possibility of obsolescence. Interest on investment-the amount invested on purchase of asset, if it had been invested in some other investment what interest would have been earned.
  10. METHODS OF DEPRECIATION 1. 2. 3. 4. 5. Straight Line Written Down Value Sumn Of Years Digits Units of Production Machine Hour Rate
  11. STRAIGHT LINE METHOD Most Easiest method, Based on the assumption of Equal Usage. Also known as fixed installment method. Makes comparisons of profits easy. Mainly suitable for those assets whose useful life can be estimated*
  12. STRAIGHT LINE METHOD Amount Of Depreciation Cost — Estimated Scrap Value Estimated Useful Life Depreciation Rate Amount of Depreciation Cost x 100
  13. WRITTEN DOWN VALUE METHOD V Depreciation is charged at a fixed rate. Depreciation is Charged on reducing balance. VAIso known as Diminishing Value Method. V Based on the assumption that benefits from assets go on diminishing with the passage of time. VYVide1y accepted by Income Tax Act.
  14. WRITTEN DOWN VALUE METHOD Rate of Depreciation = 1 (Residual price) A (I/n) Cost
  15. Example of Singhania and Bros. M/S Singhania and Bros. purchased a plant for Rs- on April, 01 2002, and spent Rs- 50,000 for its installation. The salvage value Of the plant after its useful life of 10 years is estimated to be Rs- 10,000. Record journal entries for the year 2002-03 and draw up Plant Account and Depreciation Account for first three years given that the depreciation is charged using straight line method if: (i) The bOoks of account close on March 31 every year; and (ii) The firm charges depreciation to the asset account
  16. Books of Singhania an Bros. Journal Date 2002 Apr. 01 Apr. On 2003 Mar. 31 Particulars Plant A/c Dr. To Bank A/c (Purchased plant forRs.5,oo,ooo) Plant*AJc vo BankA/e incü#ed OninstAlIÄViOiÖ Depreciation A/c Dr. To Plant A/c (Depreciation charged on asset) vrOfit and Loss Ate ToDepreciation@/e (Depreciåt10h debited to profic anci dossaceoun€) L. Debit Arnount 5,oo,ooo 505000 54, 000 54;000 Credit Arnount 509000 54,000 5+000
  17. Plant Account rya te 2002 Apr. 01 2004 Apr 1 Particulars BANK BANK(insiaJlation expenses) BALANCE btu BALANCE b/d J• Arnou,nt 5,oo,ooo 560,000 496,000 4;96.000 4, 42,000 Date 2003 MAR 31 2004 Particulars DEPRECIATION DEPRECVATTON BALANCE c/d F Rs. 54,000 4.96'000 560,000 54,000
  18. DEPRECIATION ACCOUNT DATE 2003 Mar. 31 31 PARTICULAR Plant AMOUNT 54,000 DATE 2003 Mar. 31 2004 PARTICULAR Profit and Loss evofit and-Loss AMOUNT 54,000 54>000

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