Definition and classification of Depreciation

2.  Way of availing the tax benefits for a tangible
and intangible property, which losses the
value over time
 Tangible - Car, Furniture (Seen orTouchable
items)
 Intangible –Copyright, Licence (Touched or
seen)

3.  Out of Date
 Wear and tear
 Rusting and corrosion
 Improper repair
 High Maintenance
 Example: Machine value – Rs. 10lakhs. Sold
after 5 years the price is less (Reason 1 n 2)

4.  (BV)n = Book value at the end of n-th year
 dn = Depreciation charged in the n-th year
 P = Purchase Price of the asset
 N = Service value of the asset at the end of its life
 S = ScrapValue of the asset at the end of its life
 DN =Total depreciation charged till n-th year

5.  Physical
 Functional
 Accident

6.  Straight Line Method (SLM)
 Declining Balance Method (DBM)
 Double Declining Balance Method (DDBM)
 Sum of year Digits Method(SYD)
 Sinking Fund Method (SFM)

7.  Value of asset decreases throughout the life
of the asset.
 Total depreciation charged upto n – years
P = Purchase Price
S = ScrapValue

8.  Asset loses its value faster in early life period
 Every year the book value of the asset
decreases by a fixed percentage
 Disadvantage: Never depreciates to zero

9.  It takes double the rate of depreciation and
applying declining balance method

10.  Value of asset decreases with a decreasing
rate as it becomes older
 Features:
Rapid depreciation in early years
Asset depreciates to the salvage value at the
end of life

11.  Each year depreciation is so charged that the
future worth of all depreciation and salvage
value becomes equal to purchase price of the
asset.
 d = (P-S) [ i / (1+i)N-1]
 Dn = (P-S) [(1+i)n-1 / (1+i)N-1]
 Low depreciation in early year