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    DEP1

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    MVK SRINIVASA RAO
    This document discusses depreciation, which is a permanent fall in the value of fixed assets due to wear and tear. Depreciation is allocated over the expected useful life of an asset to fairly charge the cost to accounting periods. Straight line and diminishing balance are two common depreciation methods. Straight line depreciates the cost evenly, while diminishing balance depreciates a fixed percentage of the remaining balance each year. Both methods have merits of simplicity but do not perfectly match the actual pattern of an asset's declining usefulness over time.

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    DEP1

    Uploaded by

    MVK SRINIVASA RAO
    9 views13 pages
    This document discusses depreciation, which is a permanent fall in the value of fixed assets due to wear and tear. Depreciation is allocated over the expected useful life of an asset to fairly charge the cost to accounting periods. Straight line and diminishing balance are two common depreciation methods. Straight line depreciates the cost evenly, while diminishing balance depreciates a fixed percentage of the remaining balance each year. Both methods have merits of simplicity but do not perfectly match the actual pattern of an asset's declining usefulness over time.

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    This document discusses depreciation, which is a permanent fall in the value of fixed assets due to wear and tear. Depreciation is allocated over the expected useful life of an asset to fairly charge the cost to accounting periods. Straight line and diminishing balance are two common depreciation methods. Straight line depreciates the cost evenly, while diminishing balance depreciates a fixed percentage of the remaining balance each year. Both methods have merits of simplicity but do not perfectly match the actual pattern of an asset's declining usefulness over time.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    9 views13 pages

    DEP1

    Uploaded by

    MVK SRINIVASA RAO
    This document discusses depreciation, which is a permanent fall in the value of fixed assets due to wear and tear. Depreciation is allocated over the expected useful life of an asset to fairly charge the cost to accounting periods. Straight line and diminishing balance are two common depreciation methods. Straight line depreciates the cost evenly, while diminishing balance depreciates a fixed percentage of the remaining balance each year. Both methods have merits of simplicity but do not perfectly match the actual pattern of an asset's declining usefulness over time.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 13

    DEPRECIATION

    MEANING
    Depreciation
    A permanent fall in the value of fixed assets
    arising through wear and tear from the use of
    those assets in business.
    Depreciation is allocated so as to charge a
    fair proportion of the depreciable amount
    in each accounting period during the
    expected useful life of the asset.
    OBJECTIVES OF
    DEPRECIATION
    • To ascertain the correct profit and loss:
    • To show the asset at its reasonable value
    • To provide for replacement of an asset.
    • Depreciation is permitted to be deducted
    from profits for tax purposes.
    • To ascertain the correct cost of
    production:
    • To show a true and fair view of the
    financial position:
    Causes of Depreciation

    • Internal causes: wear and tear,


    maintenance, change in production,
    restriction of production, reduced
    demand, technical progress & depletion.

    • External causes: obsolescence


    (Outdated) and efflux ion of time
    METHODS OF
    DEPRECIATION
    STRAIGHT LINE
    METHOD
    Straight line method depreciates cost evenly
    through out the useful life of the fixed asset.
    Straight line depreciation is calculated as
    follows:
    (Cost - Residual Value) / Useful Life
    ITS MERITS …
    ✔ It is a simple method of calculating the
    depreciation
    ✔ In this method ,assets can be depreciated up to
    the estimated scrap value.
    ✔ In this method, it is easy to know the amount of
    depreciation.
    ✔ Every year the profit and loss account is debited
    by the same amount of depreciation, so there is
    the same effect on profit and loss account every
    year
    ITS DEMERITS….
    ✔ With the passage of time, work efficiency of
    assets decreases and repair expenses
    increases.
    ✔ Sometimes in this method, the book value of
    assets become nil, still the asset are used in
    the business.
    DIMINISHING BALANCE METHOD

    Diminishing balance method is also known


    as written down value method or reducing
    installment method. Under this method the
    asset is depreciated at fixed percentage
    calculated on the debit balance of the asset
    which is diminished year after year on account
    of depreciation.
    ITS MERITS…

    ✔ On the expansion and increase in assets the


    depreciation can be computed easily by this
    method.
    ✔ This method is accepted under the income tax
    act.
    ITS DEMERITS..

    ✔ In this method ,the value of assets can never be


    zero.
    ✔ It is difficult task to ascertain the proper rate
    of depreciation
    ✔ In this method also, there is no provision of
    interest on capital invested in use of assets.

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