Financial Accounting Concepts

1. CHAPTER-III
VALUATION OF ASSETS

2. CHAPTER –III : CONCEPTS
Valuation of Assets:
Introduction to Depreciation - Methods (Simple
problems from Straight line method, Diminishing
balance method and Annuity method).
Inventory Valuation: Methods of inventory
valuation (Simple problems from LIFO, FIFO).
Valuation of goodwill: Methods of valuation of
goodwill.

3. Items in Liabilities:
 Capital
 Net profit (Reserves)
 Sundry Creditors
 Bills Payable
 Outstanding Expenses
 Long term/Short term Loan
 Bank O.D
 Other Liabilities.

4. Items in Assets:
 Fixed Assets
 Land & Buildings
 Plant & Machinery
 Furniture
 Tools & Fixtures
 Current Assets
 Cash
Inventory/Stock/Finished Goods
 Debtors/Bills Receivables
Fictious Assets:
 Goodwill
 Copy rights/Patents/Trademarks
 Other Assets:
 Prepaid Expenses
 Advance payments

5. Depreciation:
Value of Fixed Assets decreases with passage of time
and its utilisation. Value of the portion of asset utilised
for generating revenue must be recovered during that
accounting year to ascertain real income. Portion of
the cost of a fixed asset allocated to a particular
accounting year is called Depreciation and is charged
to Profit and Loss Account

6. Depreciation:
According to American Institute of Certified Public
Accountants (AICPA) ‘ Depreciation Accounting is a
system of accounting which aims to distribute the cost
or other basic value of tangible capital assets, less
Salvage value (if any) over the estimated useful life of
the unit (which ,may be a group of assets) in a
systematic and rational manner. It is a process of
allocation, not of valuation. Depreciation for the year
is portion of the total charge under such a system that
is allocated to the year’

7. CAUSES OF DEPRECIATION
Physical wear and tear
With the passage of time
Expiration of legal rights
NEED FOR PROVIDING DEPRECIATION
To ascertain true results of operations
To present true and fair view of the financial position
To ascertain the true cost of production
To comply with legal requirements
To accumulate funds for replacement of assets