Depriciation models

1. BY: Deepak .G

2. Depreciation is a measure of the
wearing out, consumption or other
loss of value of a depreciable asset
arising from use, effluxion of time or
obsolescence through technology and
market changes.

3. Applicability of the Accounting Standard 6
This accounting standard is applicable to all depreciable
assets except, the following:
(i) Forests, plantations and similar regenerative natural
resources;
(ii) Wasting assets including expenditure on the
exploration for and extraction of minerals, oils, natural
gas and similar non-regenerative resources;
(iii) Expenditure on research and development;
(iv)Goodwill;
(v) Live stock- Cattle, Animal Husbandry

4. Methods of depreciation
There are two methods of depreciation. These are:
i) Straight Line Method (SLM)
ii) Written down value Method (WDV)
Selection of appropriate method
It depends upon following methods:-
•Type of assets
•Nature of assets
•Circumstances of prevailing business
Note- A combination of more than one standards may be used
Accounting treatment- selected depreciation methods should
be applied consistently applied from period to period

5. Change in depreciation methods:
•Compliance of statute
•Compliance of accounting standards
•For more appropriate presentation of the financial
statements

6. Procedure to be followed in change of methods:-
•Depreciation should be recomputed applying new method from date of
acquisition/installation till date of change of method.
•Difference between total depreciation under two methods and
accumulated depreciation under the old method till date of change may
be surplus or deficiency.
•Resultant surplus credited to profit and loss a/c under head
“depreciation written back”.
• Resultant deficiency charged to profit and loss a/c.
Change in depreciation method should be treated as change in accounting
policy (as per AS 5) and its effect should be quantified and disclosed.

7. When there is change in estimated useful life of
assets, outstanding depreciable amount on the date
of change in estimated useful life of asset should
allocated over the revised remaining useful life of
assets.

8. Objectives
In general
• The introduction accounting standards
there was uniformity in the accounts of
various companies within India.
• Converged Accounting Standards along with
IFRS was introduced so that accounts of
India can be compared with companies of
the world
Related to Depreciation
• It will charged according to the shelve life of
fixed asset.

9. Recommendations
• There are two types of depreciation which are:-
• Straight Line Depreciation Method
• Written Down Value Method
It would be better if only one kind of depreciation
method is followed all over the world
• There should be such accounting so that tax
accounting and financial statement accounting
could be done together
• Slabs of tax accounting should be same with
the financial statements.