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Depreciation accounting ppt @ bec doms 2009
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Depreciation Accounting
Depreciation Accounting
Definition A measure of the wearing out, consumption or other loss of value of depreciable assets arising from use, efflux of time or obsolescence through technology and market changes.”
Depreciation Accounting
Definition Analysis
Allocation of depreciable amount of a fixed asset over its estimated useful life
Depreciation is a non-cash expense and is charged to Profit & Loss a/c each year
Depreciation is based on cost of asset
Depreciation Accounting
Causes of Depreciation
Use/consumption
Efflux of time
Abnormal factors
Obsolescence
Depreciation AccountingNeed for charging Depreciation
To ascertain the true & fair profit or loss of the organisation
To reveal the true & fair financial position of the organisation
To provide funds for replacement
To compute the correct tax liability
Depreciation Accounting
Accounting for Depreciation (A)Methods of determining the amounts of depreciation.
(B) Accounting treatment
Depreciation Accounting
(A) Methods of determining the amounts of depreciation
2 methods
Depreciation Accounting
Fixed Instalment Method/Straight Line Method
CALCULATION OF DEPRECIATIONOriginal cost of asset – Estimated scrap value Life of the asset
Depreciation Accounting
Original Cost of the Asset
Depreciation Accounting
Original Cost includes - Payment to vendor- Transportation- Customs duty, in case of import of asset- Transit Insurance- Commission paid on purchase of asset- Installation charges- Initial repairs to second hand assets- Registration cost- Special costs incurred
Depreciation Accounting
Estimated Scrap Value
Depreciation Accounting
Life of the Asset
Factors Responsible
- Nature of the product- Quality of machine- Legal requirements- Use of machine- Maintenance of asset- Replacement policy
Depreciation Accounting
Diminishing Balance Method/Written Down Value Method
Depreciation Accounting
(B) Accounting treatment
Depreciation Accounting
AS – 6 Depreciation Accounting
Depreciation Accounting
APPLICABILITY
Forests, plantations and similar regenerative natural resources.Wasting Assets – Oil wells, Coal mines etc.Expenditure on research and development, whether successful or unsuccessful.GoodwillLivestockLand, unless it has a limited useful life for the organisation
Depreciation Accounting
Change in the method of Depreciation
Statutory requirement arisesCompliance with the Accounting StandardIf the change would result in a more appropriate preparation or presentation of the financial statements
Depreciation Accounting
Disclosure in Financial statements
Historical cost of each assetTotal depreciation for the periodThe method of depreciation being usedRate of depreciationUseful life of the asset
Depreciation Accounting
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