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-Meaning-Depreciable assets-Factors causing depreciation-The need and objective of providing depreciation-Basics factor to be known before calculating depreciation-Methods of depreciation-Straight line method &written down value method
Meaning- Depreciation may be described as
a permanent, continuing and gradual shrinkage in the value of fixed assets. It is a fall in the quality, or value of fixed asset. The net result of an depreciation is that sooner or later the asset will become useless.
1. Used during more than one year2. Have a limited useful life3. Are held by an enterprise for use in :
-the production or supply of goods and services
-for renting to others
-for administrative purposes
-not for the purpose sale in the ordinary course of business.
1. Wear and tear due to actual use2. Efflux of time3. Obsolescence4. Accident5. Fall in market price
1. Depreciation means expiration of the cost of the fixed asset, concerned during the period for which accounts are being prepared.
2. To continue to show the fixed assets at their original worth in the balance sheet.
3. The amount debited in the profit and loss a/c are retained in the business.
1. Cost of the assets2. The estimated residual or scrap value at
the end of it’s life3. The estimated numbers of the years of
it’s life
1. Straight line method2. Written down value method3. Annuity method4. Insurance fund method5. Depreciation fund method6. Sum of digits method7. Revaluation method8. Depletion method9. Machine hour rate method10. Repair provision method
This method is based on the assumption of equal usage of the asset over it’s entire useful life. It is also called fixed installment method because the amount of depreciation remains constant from year to year over the useful life of the asset. According to the method ,a fixed and an equal amount is changed as depreciation in the every accounting period during the lifetime of an asset.
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Under this method, depreciation is charged on the book value of the asset. Since book value keeps on reducing by the annual charge of depreciation, it is also known as reducing balance method. The amount of depreciation reduce year after year.
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- N.C SHUKLA,S.C GUPTA,P.S GREWAL ADVANCED ACCOUNTS,2008,S C CHAND
- ASHOK BANERJEE,FINANCIAL ACCOUNTING,2005,EXCEL BOOKS
