depreciation
DESCRIPTION
Detail Information about SLM and WDM with exampleTRANSCRIPT
DEPRECIATIONPRESENTED BY :-
1) NIKHIL MHATRE
2) ROSHAN TUPE
What does Depreciation means….? The word depreciation has derived from
Latin word ‘Depretium’ which means “decline "or “reduction "in price or value.Depreciation is concerned with fixed assets only. Fixed assets have Long life and loose their value due to usages. Even if the asset is not put to use, its value goes on reducing due to time span.
In Simple Words :-
a reduction in the value of an asset overtime, due to particular wear and tear.
Assets which gets Depreciated…?
1) Machinery
2) Furniture
3) Vehicles
4) All Electronics Items use for Business purpose
Objectives of Depreciation
To calculate proper profits. To show the asset at its reasonable value. To maintain the original monetary investment
of the asset intact. Provision of depreciation results in some
incidental advantages also. To provide for replacement of an asset. Depreciation is permitted to be deducted from
profits for tax purposes.
Causes of Depreciation .Internal causes : wear and tear, disuse, maintenance, change in
production, restriction of production, reduced demand, technical progress & depletion.
.External causes : obsolescence and efflux ion of time
Method of Depreciation
DepreciationStraight Line Method
Written Down Value
Method
Sum of the Years’ Digits
Method
Units of Production
Method
Double Declining Balance Method Appraisal
Method
Sinking Fund
Method
Annuity Method
Insurance Policy
Method
Straight Line Method This Method is also known as “Fixed instalment Method” or
“Original Cost Method”.
Under this method depreciation is calculated every year on the original cost of the Asset (Cost = Purchase price + All expenses) incurred till the asset is put in the form of use.eg. Transportation, Octroi, Duties & Installation charges..
Formula :-
Depreciation = Original Cost X Rate of Depreciation X Period
Example:-
M/s Manoj P.Ltd purchased a Machinery on 1st Oct 2011 at Rs.90,000 and Spent Rs.10,000 on its installation. The firm provide depreciation at 10% p.a. under Straight Line Method on 31st March every year.Show Machinery Account for 2011-12, 2012-13.
In the books of M/s Manoj P.Ltd
Dr. Machinery Account Cr.
Date Particulars J.F Amt Date Particulars J.F Amt
2011 2012
Oct.1 To Bank A/c (Machinery) 90,000 Mar.31 By Depreciation A/c
Dep.1,00,000 X 10% X 6 12
5,000
Oct.1 To Bank A/c (Installation) 10,000 Mar.31 By Balance c/d 95,000
1,00,000 1,00,000
2012 2013
Apr.1 To Balance b/d 95,000 Mar.31 By Depreciation A/c
Dep.1,00,000 X 10% X 12 12
10,000
Mar.31 By Balance c/d 85,000
95,000 95,000
2013
Apr.1 To Balance b/d 85,000
Advantages & Disadvantages
of Straight line methodAdvantages:
Simple, easy to understand and to applyIt provides uniform charge every yearIt’s calculated on original cost over the life time
Disadvantages:Depreciation is not related to the usage factor
It ignores the fact that in the later years of the life of the asset, efficiency of the asset declines.
Loss of interest on investment in the asset is not accounted for…
Written Down Value Method This Method is also known as “Reducing Balance Method” or
“Diminishing Balance Method”.
Under this method depreciation is calculated on the written down value (i.e opening balance of every year) of the asset. Under this method, the amount of depreciation keeps on declining every year..
Example:-
M/s Prajakta & Son’s purchased a Machinery on 1st Oct 2011 at Rs.90,000 and Spent Rs.10,000 on its installation. The firm provide depreciation at 10% p.a. under Written Down Value Method on 31st March every year.Show Machinery Account for 2011-12, 2012-13.
In the books of M/s Prajakta & Son's
Dr. Machinery Account Cr.
Date Particulars J.F Amt Date Particulars J.F Amt
2011 2012
Oct.1 To Bank A/c (Machinery) 90,000 Mar.31 By Depreciation A/c
Dep.1,00,000 X 10% X 6 12
5,000
Oct.1 To Bank A/c (Installation) 10,000 Mar.31 By Balance c/d 95,000
1,00,000 1,00,000
2012 2013
Apr.1 To Balance b/d 95,000 Mar.31 By Depreciation A/c
Dep.95,000 X 10% X 12 12
9,500
Mar.31 By Balance c/d 85,500
95,000 95,000
2013
Apr.1 To Balance b/d 85,500
Advantages & Disadvantages
of Written down value methodAdvantages:
It’s a simple method of providing depreciation as a fixed rate is applied on book-value or written down value of assets.
This method is quite popularIt provides uniform charge for charge for services of the asset
through out the life
Disadvantages:The method is slightly complicatedIf the asset has no residual value, it is very difficult to calculate
the rate.
THANK YOU,