Professional Documents
Culture Documents
|
Meaning of Depreciation
2 Gradual decline in the value of asset due
to continuous use.
2 It¶s a permanent process which decreases
the book value of fixed assets.
2 Different terms denote depreciation for
different types of assets-
assets- Depletion,
amortization, obsolescence.
wharacteristics
2 Reduction in value
2 wharged on book value
2 Permanent decrease
2 wharged on fixed assets only
2 Nature
2 Based on forecast
2 Fall in quality and productivity
O
O
Ä. Easy calculation
2. Equal charge against income
3. No undue pressure in later years
4. Balance of asset is never written off to zero
5. §pproval method by income tax authority
Ô
2 §mount of depreciation
2 Basis of calculating depreciation
2 Zero level
2 wombined effect of depreciation and repairs on P&L a/c
2 Rate of depreciation
2 §pproval of income tax
2 Sustainability
-uestion on written down value
method
2008
Jan Ä To balance 7290
b/d
Dr. wr
20ÄÄ 20ÄÄ
Jan Ä To Bal b/d Mar 3Ä By wash a/c (a) 6,000
(a)Ä2,825 Mar 3Ä By Profit & loss a/c 6,504
(b)9,000
(b)9,000 2Ä,825 (loss on sale )
Mar 3Ä By Depreciation a/c 32Ä
Ä To wash a/c Ä5,000 (a)
(c) Dec 3Ä By Depreciation a/c
(b) 900
(c)Ä,Ä25
(c)Ä,Ä25 2,025
Dec 3Ä By Bal c/d
(b) 8Ä00
(c) Ä3875 2Ä975
36,825 36,825
Working Note:
Dec.3Ä, 2009-
2009- Depreciation (a)
=Rs.Ä5000*Ä0/Ä00
=Rs.Ä500*6/Ä2
=Rs.750
Dec.3Ä, 20Ä0-
20Ä0- Depreciation
(a)= Rs.Ä4,250*Ä0/Ä00
=Rs.Ä,425
(b)= Rs.Ä0,000*Ä0/Ä00
=Rs.Ä,000
Total Depreciation= Ä,000+Ä,425
=2,425
Mar 3Ä, 20ÄÄ-
20ÄÄ- Depreciation
(a)=Ä2,825*Ä0/Ä00
= Ä283*3/Ä2
= 32Ä
Mar 3Ä,20ÄÄ ±
Loss from sale of machinery (a)=
Ä2,825-- (6,000 + 32Ä)
Ä2,825
=6,504
Dec 3Ä,20ÄÄ ± Depreciation
(b)=9000*Ä0/Ä00
=900
(c)=Ä5,000*Ä0/Ä00
=Ä,500*9/Ä2
=Ä,Ä25
Total Depreciation= 900+Ä,Ä25