accounting standards - 6(depreciation accounting)
DESCRIPTION
DEPRECIATION ACCOUNTINGTRANSCRIPT
ACCOUNTING STANDARDS - 6
DEPRECIATION ACCOUNTING
GROUP - 7
• HEENA J DEDHIA• PRAFUL BAFNA• SHIVANI THAKUR• VINOD K .KANTHI• DAVID L. HMAR• PANKAJ KUMAR• SURYA PRASAD
DEPRECIATION
Depreciation is a measure of the wearing out, consumption or other loss of value of a depreciable asset arising from use, efflux ion of time or obsolescence through technology and market changes
DEPRECIABLE ASSETS
• Depreciable assets are assets which (i) are expected to be used during more than one accounting period (ii) have a limited useful life (iii) are held by an enterprise for use in the production or supply of goods and services, for rental to others, or for administrative and not for the purpose of sale in the ordinary course of business.
• Tangible assets like plant and machinery, furniture, building
• Intangible assets like patent, copyrights, trademarks, licenses, etc.
forests, plantations and similar regenerative natural resources;
wasting assets including expenditure on the exploration for and extraction of minerals, oils, natural gas and similar non-regenerative resources;
expenditure on research and development;
goodwill;
live stock.
EXCEPTIONS
USEFUL LIFE
Useful life is measured in terms of
Time
Productivity
DEPRECIABLE AMOUNT
Depreciable amount of a
depreciable asset is its
historical cost, or other amount
substituted for historical cost
in the financial statements,
less the estimated residual
value.
Historical cost includes 1) acquisition
2) installation 3) commissioning 4) additions or
improvements
Expected useful life
Estimated residual value
FACTORS AFFECTING ASSESSMENT OF DEPRECIATION
MARKET VALUE
Market value is the price at which an asset would trade in a competitive setting
Market value is not taken into consideration while calculation of depreciation rather calculated on the basis of book-value.
SALVAGE VALUE
Salvage value is the estimated value of an asset at the end of its useful life.
METHODS OF DEPRECIATION
1) STRAIGHT LINE METHODAmount of depreciation is fixed.Useful to assets whose service remain uniform
throughout the year. For e.g. Furniture & fixtures
2) WRITTEN DOWN VALUE METHOD Rate of depreciation is fixed.
3) ANNUITY METHODDepreciation is calculated from annuity table.
METHODS OF DEPRECIATION
4) SINKING FUND METHODThe amount of depreciation created is invested
outside.
5) INSURANCE POLICY METHODAmount of depreciation of each year is paid as an
insurance premium.
6) KILOMETRE METHOD Depreciation calculated on the distance run by the
transportation means.
7) LABOUR HOUR RATE METHODDepreciation is calculated on the basis of labour hour
worked.
METHODS OF DEPRECIATION
8) GLOBAL METHODDepreciation is calculated on the sum of all
the assets.
9) PRODUCTION UNIT METHODMostly used in mines to calculate the
depreciation on production.
10) STATUATORY METHODDepreciation value/rate is fixed by this
method.
FACTORS AFFECTING SELECTION OF METHOD
TYPE OF ASSET
NATURE OF USE
CIRCUMSTANCES PREVAILING
REVALUATION OF ASSET
Additions to asset
Calculation of revaluation of asset (add example as hyperlink)
Re computation of depreciation and its effects
Treatment of residual value (give examples wherever needed)
DATE PARTICULARS L.F. DEBIT CREDIT
DEPRECITION A/C DR. TO BUILDING A/C
[BEING DEPRECIATION CHARGED ON BUILDING]
10,000/-10,000/-
DATE
PARTICULARS
J.F. DEBIT AMT. DATE
PARTICULARS J.F. CREDIT AMT.
TO BAL B/D 100000
___________100000
BYDEPRECIATION A/C
BY BAL C/D
10,000
90,000____________
100000
APPLICATION OF AS6JOURNAL ENTRY
LEDGER OF BUILDING A/C
DATE PARTICULARS
J.F. DEBIT AMT. DATE PARTICULARS J.F. CREDIT AMT.
TO BUILDING A/C
10,000 BY P/L A/C 10,000
DEPRECIATION A/C
DATE PARTICULARS DEBIT CREDIT
BUILDING 90,000
DEPRECIATION 10,000
Dr. Amt.
Cr. Amt.
TO DEPRECIATION A/C 10,000
LIABILITIES ASSETS
BUILDING 90,000
TRIAL BALANCE
P&L A/C
BALANCE SHEET
Dr. Amt. Cr. Amt.
TO DEPRECIATION A/C 10,000
P&L A/C
LIABILITIES ASSETS
BUILDING 90,000
BALANCE SHEET
DISCLOSURE IN BALANCE SHEET
Depreciation calculated at book value and not market value
Method of depreciation used
Any revaluation of assetAny re computation of depreciation
Any addition to asset and type of addition
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