Depreciation Accounting
Depreciation accounting involves allocating the depreciable amount of a fixed asset over its useful life. It helps in determining true profit, financial position, and tax liability of an organization. Methods of depreciation calculation and accounting treatment are essential for accurate financial reporting.
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Presentation Transcript
Depreciation Accounting BY ASST. PROF DR. J . SAHA DEPARTMENT OF COMMERCE
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 Accounting Need 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 Fixed Instalment Method/Straight LineMethod CALCULATION OF DEPRECIATION (Original cost of asset Estimated scrap value) Estimated life of the asset
Depreciation Accounting Original Cost of theAsset
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 -Registrationcost -Special costs incurred
Depreciation Accounting Estimated ScrapValue
Depreciation Accounting Life of theAsset Factors Responsible - Nature of the product - Quality of machine - Legal requirements - Use of machine - Maintenance of asset - Replacement policy
Depreciation Accounting Diminishing Balance Method Or Written Down Value Method
Depreciation Accounting Accountingtreatment
Depreciation Accounting AS 6 DepreciationAccounting
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. Goodwill Livestock Land, unless it has a limited useful life for the organisation
Depreciation Accounting Change in the method of Depreciation Statutory requirement arises Compliance with the Accounting Standard If the change would result in a more appropriate preparation or presentation of the financial statements
Depreciation Accounting Disclosure in Financialstatements Historical cost of each asset Total depreciation for the period The method of depreciation being used Rate of depreciation Useful life of the asset
Depreciation Accounting THANK YOU!!
