This document provides an overview of depreciation accounting. It defines depreciation and related terms like depletion, amortization, and obsolescence. It discusses the causes and objectives of charging depreciation. The document also explains factors affecting depreciation amounts and relevant accounting principles. Finally, it describes the straight line and written down value methods for allocating depreciation over the useful life of an asset.
Cost Accounting-
-Meaning of Cost Accounting
-Scope of Cost Accounting
-Nature of Cost Accounting
-Relationship b/w Financial Accounting & Cost Accounting
-Cost Accounting v/s Management Accounting
-Objectives of cost accounting
-Function of cost accountant
-Essentials of cost accounting
-Advantages of cost accounting
-Limitations of cost accounting
-Role of cost in cost accounting
-Cost Unit & Cost Centre
-Cost Techniques
-Costing Systems
-Costing Methods
-Cost Classification
-Components of total cost
-Cost Sheet.
Capital expenditure & Revenue expenditureMudassir Raza
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Capital expenditures are typically one-time large purchases of fixed assets that will be used for revenue generation over a longer period. Revenue expenditures are the ongoing operating expenses, which are short-term expenses used to run the daily business operations.
A power point presentation describing some basic definitions, father of cost accounting, Indian aspect of cost accounting and Various Methods and Techniques of costing.
Presented by: Aquib Ali, Ajay Gupta and Ashwin Showi. (M.Com students)
at the Bhopal School of Social Sciences(BSSS) on 6 September, 2017
The capital which is needed for the regular operation of business is called working capital. 1- for the purchase of raw materials
2- for the payment of wages
3- payment of rent and of other expenses
Working capital is kept in the form of cash, debtors, raw materials inventory, stock of finished goods, bills receivable etc.
Size Of Business
Nature Of Business
Storage Period
Credit Period
Seasonal Requirement
Potential Growth Or Expansion Of Business
Changes In Price Level
Dividend Policy
Working Capital Cycle
Operating Efficiency
Other Factors
Working capital requirement of a firm is directly influenced by the size of its business operation.
Big business organizations require more working capital than the small business organization.
Working capital requirement depends also upon the nature of business carried by the firm. Normally, manufacturing industries and trading organizations need more working capital than in the service business organizations.
A service sector does not require any amount of stock of goods. But in the manufacturing or trading firm, credit sales and advance related transactions are in large amount.
Time needed for keeping the stock in store is called storage period. The amount of working capital is influenced by the storage period. If storage period is high A firm should keep more quantity of goods in store and hence requires more working capital. if the storage Period is less , then more stock of goods must be held in store as work-in-progress.
Cost Accounting-
-Meaning of Cost Accounting
-Scope of Cost Accounting
-Nature of Cost Accounting
-Relationship b/w Financial Accounting & Cost Accounting
-Cost Accounting v/s Management Accounting
-Objectives of cost accounting
-Function of cost accountant
-Essentials of cost accounting
-Advantages of cost accounting
-Limitations of cost accounting
-Role of cost in cost accounting
-Cost Unit & Cost Centre
-Cost Techniques
-Costing Systems
-Costing Methods
-Cost Classification
-Components of total cost
-Cost Sheet.
Capital expenditure & Revenue expenditureMudassir Raza
ย
Capital expenditures are typically one-time large purchases of fixed assets that will be used for revenue generation over a longer period. Revenue expenditures are the ongoing operating expenses, which are short-term expenses used to run the daily business operations.
A power point presentation describing some basic definitions, father of cost accounting, Indian aspect of cost accounting and Various Methods and Techniques of costing.
Presented by: Aquib Ali, Ajay Gupta and Ashwin Showi. (M.Com students)
at the Bhopal School of Social Sciences(BSSS) on 6 September, 2017
The capital which is needed for the regular operation of business is called working capital. 1- for the purchase of raw materials
2- for the payment of wages
3- payment of rent and of other expenses
Working capital is kept in the form of cash, debtors, raw materials inventory, stock of finished goods, bills receivable etc.
Size Of Business
Nature Of Business
Storage Period
Credit Period
Seasonal Requirement
Potential Growth Or Expansion Of Business
Changes In Price Level
Dividend Policy
Working Capital Cycle
Operating Efficiency
Other Factors
Working capital requirement of a firm is directly influenced by the size of its business operation.
Big business organizations require more working capital than the small business organization.
Working capital requirement depends also upon the nature of business carried by the firm. Normally, manufacturing industries and trading organizations need more working capital than in the service business organizations.
A service sector does not require any amount of stock of goods. But in the manufacturing or trading firm, credit sales and advance related transactions are in large amount.
Time needed for keeping the stock in store is called storage period. The amount of working capital is influenced by the storage period. If storage period is high A firm should keep more quantity of goods in store and hence requires more working capital. if the storage Period is less , then more stock of goods must be held in store as work-in-progress.
VARIOUS FORMS OF INCOME TAX ,BASIC KNOWLEDGE OF GST PPT WHICH REQUIRED FOR A STUDENT TO UNDERSTAND DIRECT AND INDIRECT TAXATION. STUDENTS STUDYING B.COM AND M.COM WILL BE BENEFITED . FOR PRACTITIONERS ALSO WILL BENEFIT.
CA NOTES ON DEPRECIATION
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Introduction and Accounting for Buy-back of Shares in India as per the Companies Act 2013 and other rules.
It will be useful for the students of B. Com., B.Com.(H), CA, CS and other professional courses, studying Corporate Accounting.
Enterprise Excellence is Inclusive Excellence.pdfKaiNexus
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Enterprise excellence and inclusive excellence are closely linked, and real-world challenges have shown that both are essential to the success of any organization. To achieve enterprise excellence, organizations must focus on improving their operations and processes while creating an inclusive environment that engages everyone. In this interactive session, the facilitator will highlight commonly established business practices and how they limit our ability to engage everyone every day. More importantly, though, participants will likely gain increased awareness of what we can do differently to maximize enterprise excellence through deliberate inclusion.
What is Enterprise Excellence?
Enterprise Excellence is a holistic approach that's aimed at achieving world-class performance across all aspects of the organization.
What might I learn?
A way to engage all in creating Inclusive Excellence. Lessons from the US military and their parallels to the story of Harry Potter. How belt systems and CI teams can destroy inclusive practices. How leadership language invites people to the party. There are three things leaders can do to engage everyone every day: maximizing psychological safety to create environments where folks learn, contribute, and challenge the status quo.
Who might benefit? Anyone and everyone leading folks from the shop floor to top floor.
Dr. William Harvey is a seasoned Operations Leader with extensive experience in chemical processing, manufacturing, and operations management. At Michelman, he currently oversees multiple sites, leading teams in strategic planning and coaching/practicing continuous improvement. William is set to start his eighth year of teaching at the University of Cincinnati where he teaches marketing, finance, and management. William holds various certifications in change management, quality, leadership, operational excellence, team building, and DiSC, among others.
RMD24 | Retail media: hoe zet je dit in als je geen AH of Unilever bent? Heid...BBPMedia1
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Grote partijen zijn al een tijdje onderweg met retail media. Ondertussen worden in dit domein ook de kansen zichtbaar voor andere spelers in de markt. Maar met die kansen ontstaan ook vragen: Zelf retail media worden of erop adverteren? In welke fase van de funnel past het en hoe integreer je het in een mediaplan? Wat is nu precies het verschil met marketplaces en Programmatic ads? In dit half uur beslechten we de dilemma's en krijg je antwoorden op wanneer het voor jou tijd is om de volgende stap te zetten.
Putting the SPARK into Virtual Training.pptxCynthia Clay
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This 60-minute webinar, sponsored by Adobe, was delivered for the Training Mag Network. It explored the five elements of SPARK: Storytelling, Purpose, Action, Relationships, and Kudos. Knowing how to tell a well-structured story is key to building long-term memory. Stating a clear purpose that doesn't take away from the discovery learning process is critical. Ensuring that people move from theory to practical application is imperative. Creating strong social learning is the key to commitment and engagement. Validating and affirming participants' comments is the way to create a positive learning environment.
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It is crucial for the taxpayers to understand about the TDS Return Filing Due Date, so that they can fulfill your TDS obligations efficiently. Taxpayers can avoid penalties by sticking to the deadlines and by accurate filing of TDS. Timely filing of TDS will make sure about the availability of tax credits. You can also seek the professional guidance of experts like Legal Pillers for timely filing of the TDS Return.
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Cultivating and maintaining discipline within teams is a critical differentiator for successful organisations.
Forward-thinking leaders and business managers understand the impact that discipline has on organisational success. A disciplined workforce operates with clarity, focus, and a shared understanding of expectations, ultimately driving better results, optimising productivity, and facilitating seamless collaboration.
Although discipline is not a one-size-fits-all approach, it can help create a work environment that encourages personal growth and accountability rather than solely relying on punitive measures.
In this deck, you will learn the significance of workplace discipline for organisational success. Youโll also learn
โข Four (4) workplace discipline methods you should consider
โข The best and most practical approach to implementing workplace discipline.
โข Three (3) key tips to maintain a disciplined workplace.
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Stay ahead of the curve with our premium MEAN Stack Development Solutions. Our expert developers utilize MongoDB, Express.js, AngularJS, and Node.js to create modern and responsive web applications. Trust us for cutting-edge solutions that drive your business growth and success.
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Attending a job Interview for B1 and B2 Englsih learnersErika906060
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It is a sample of an interview for a business english class for pre-intermediate and intermediate english students with emphasis on the speking ability.
"๐ฉ๐ฌ๐ฎ๐ผ๐ต ๐พ๐ฐ๐ป๐ฏ ๐ป๐ฑ ๐ฐ๐บ ๐ฏ๐จ๐ณ๐ญ ๐ซ๐ถ๐ต๐ฌ"
๐๐ ๐๐จ๐ฆ๐ฌ (๐๐ ๐๐จ๐ฆ๐ฆ๐ฎ๐ง๐ข๐๐๐ญ๐ข๐จ๐ง๐ฌ) is a professional event agency that includes experts in the event-organizing market in Vietnam, Korea, and ASEAN countries. We provide unlimited types of events from Music concerts, Fan meetings, and Culture festivals to Corporate events, Internal company events, Golf tournaments, MICE events, and Exhibitions.
๐๐ ๐๐จ๐ฆ๐ฌ provides unlimited package services including such as Event organizing, Event planning, Event production, Manpower, PR marketing, Design 2D/3D, VIP protocols, Interpreter agency, etc.
Sports events - Golf competitions/billiards competitions/company sports events: dynamic and challenging
โญ ๐ ๐๐๐ญ๐ฎ๐ซ๐๐ ๐ฉ๐ซ๐จ๐ฃ๐๐๐ญ๐ฌ:
โข 2024 BAEKHYUN [Lonsdaleite] IN HO CHI MINH
โข SUPER JUNIOR-L.S.S. THE SHOW : Th3ee Guys in HO CHI MINH
โขFreenBecky 1st Fan Meeting in Vietnam
โขCHILDREN ART EXHIBITION 2024: BEYOND BARRIERS
โข WOW K-Music Festival 2023
โข Winner [CROSS] Tour in HCM
โข Super Show 9 in HCM with Super Junior
โข HCMC - Gyeongsangbuk-do Culture and Tourism Festival
โข Korean Vietnam Partnership - Fair with LG
โข Korean President visits Samsung Electronics R&D Center
โข Vietnam Food Expo with Lotte Wellfood
"๐๐ฏ๐๐ซ๐ฒ ๐๐ฏ๐๐ง๐ญ ๐ข๐ฌ ๐ ๐ฌ๐ญ๐จ๐ซ๐ฒ, ๐ ๐ฌ๐ฉ๐๐๐ข๐๐ฅ ๐ฃ๐จ๐ฎ๐ซ๐ง๐๐ฒ. ๐๐ ๐๐ฅ๐ฐ๐๐ฒ๐ฌ ๐๐๐ฅ๐ข๐๐ฏ๐ ๐ญ๐ก๐๐ญ ๐ฌ๐ก๐จ๐ซ๐ญ๐ฅ๐ฒ ๐ฒ๐จ๐ฎ ๐ฐ๐ข๐ฅ๐ฅ ๐๐ ๐ ๐ฉ๐๐ซ๐ญ ๐จ๐ ๐จ๐ฎ๐ซ ๐ฌ๐ญ๐จ๐ซ๐ข๐๐ฌ."
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This Digital Transformation and IT Strategy Toolkit was created by ex-McKinsey, Deloitte and BCG Management Consultants, after more than 5,000 hours of work. It is considered the world's best & most comprehensive Digital Transformation and IT Strategy Toolkit. It includes all the Frameworks, Best Practices & Templates required to successfully undertake the Digital Transformation of your organization and define a robust IT Strategy.
Editable Toolkit to help you reuse our content: 700 Powerpoint slides | 35 Excel sheets | 84 minutes of Video training
This PowerPoint presentation is only a small preview of our Toolkits. For more details, visit www.domontconsulting.com
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A personal brand exploration presentation summarizes an individual's unique qualities and goals, covering strengths, values, passions, and target audience. It helps individuals understand what makes them stand out, their desired image, and how they aim to achieve it.
Tata Group Dials Taiwan for Its Chipmaking Ambition in Gujaratโs DholeraAvirahi City Dholera
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The Tata Group, a titan of Indian industry, is making waves with its advanced talks with Taiwanese chipmakers Powerchip Semiconductor Manufacturing Corporation (PSMC) and UMC Group. The goal? Establishing a cutting-edge semiconductor fabrication unit (fab) in Dholera, Gujarat. This isnโt just any project; itโs a potential game changer for Indiaโs chipmaking aspirations and a boon for investors seeking promisingย residential projects in dholera sir.
Visit : https://www.avirahi.com/blog/tata-group-dials-taiwan-for-its-chipmaking-ambition-in-gujarats-dholera/
Memorandum Of Association Constitution of Company.pptseri bangash
ย
www.seribangash.com
A Memorandum of Association (MOA) is a legal document that outlines the fundamental principles and objectives upon which a company operates. It serves as the company's charter or constitution and defines the scope of its activities. Here's a detailed note on the MOA:
Contents of Memorandum of Association:
Name Clause: This clause states the name of the company, which should end with words like "Limited" or "Ltd." for a public limited company and "Private Limited" or "Pvt. Ltd." for a private limited company.
https://seribangash.com/article-of-association-is-legal-doc-of-company/
Registered Office Clause: It specifies the location where the company's registered office is situated. This office is where all official communications and notices are sent.
Objective Clause: This clause delineates the main objectives for which the company is formed. It's important to define these objectives clearly, as the company cannot undertake activities beyond those mentioned in this clause.
www.seribangash.com
Liability Clause: It outlines the extent of liability of the company's members. In the case of companies limited by shares, the liability of members is limited to the amount unpaid on their shares. For companies limited by guarantee, members' liability is limited to the amount they undertake to contribute if the company is wound up.
https://seribangash.com/promotors-is-person-conceived-formation-company/
Capital Clause: This clause specifies the authorized capital of the company, i.e., the maximum amount of share capital the company is authorized to issue. It also mentions the division of this capital into shares and their respective nominal value.
Association Clause: It simply states that the subscribers wish to form a company and agree to become members of it, in accordance with the terms of the MOA.
Importance of Memorandum of Association:
Legal Requirement: The MOA is a legal requirement for the formation of a company. It must be filed with the Registrar of Companies during the incorporation process.
Constitutional Document: It serves as the company's constitutional document, defining its scope, powers, and limitations.
Protection of Members: It protects the interests of the company's members by clearly defining the objectives and limiting their liability.
External Communication: It provides clarity to external parties, such as investors, creditors, and regulatory authorities, regarding the company's objectives and powers.
https://seribangash.com/difference-public-and-private-company-law/
Binding Authority: The company and its members are bound by the provisions of the MOA. Any action taken beyond its scope may be considered ultra vires (beyond the powers) of the company and therefore void.
Amendment of MOA:
While the MOA lays down the company's fundamental principles, it is not entirely immutable. It can be amended, but only under specific circumstances and in compliance with legal procedures. Amendments typically require shareholder
ENTREPRENEURSHIP TRAINING.ppt for graduating class (1).ppt
ย
Accounting for depreciation 1
1. M. C. Sharma
Associate Professor
Department of Commerce
Shaheed Bhagat Singh Evening College
(University of Delhi)
Delhi
1
2. Learning Objectives:
Learning objectives of todayโs lecture are to know and
understand :
๏ What is depreciation?
๏ What are related terms: Depletion, Amortisation and
Obsolescence?
๏ What are the causes of Depreciation?
๏ What are the objectives of charging depreciation?
๏ What are the factors affecting the amount of depreciation?
๏ What are the relevant accounting principles?
๏ Methods of providing or allocation depreciation
2
3. What is depreciation?
๏ Depreciation means decrease in the value of fixed
assets due to their use in business, passage of time or
obsolescence.
3
4. Depreciation as per AS 6
๏ 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.
๏ 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.
๏ Depreciation includes amortisation of assets whose
useful life is predetermined.
4
5. Depreciable Asset
Depreciable assets are assets which
i. are expected to be used during more than one
accounting period; and
ii. have a limited useful life; and
iii. are held by an enterprise for use in the production or
supply of goods and services, for rental to others, or
for administrative purposes and not for the purpose
of sale in the ordinary course of business.
5
6. What is depletion?
6
The term โDepletionโ refers to the physical deterioration
by the exhaustion of natural resources, like, quarries,
mines, oil-wells, etc. Due to mining or extraction, the
stock of minerals/oil, etc. is depleted/reduced. In case of
such assets, usually depreciation is charged on the basis
of quantity produced.
7. What is amortisation?
7
Amortisation refers to the economic deterioration of
intangible assets like, goodwill, patents, trademark,
copyright etc. It is the practice to write off the intangible
assets over a reasonable period. When a part of an
intangible asset is written off, it is called amortisation.
8. What is obsolescence?
๏ The term โObsolescenceโ refers to the economic
deterioration of assets, due to change in technology,
invention of improved equipment, market decline due
to change in taste and fashion, etc., or inadequacy of
existing plant to meet the increased business.
๏ Depreciation is affected by obsolescence as it
decreases the value of asset.
8
9. Causes of Depreciation
๏ Wear and tear. Fixed assets are purchased for use in
business. Due to constant use of fixed assets in
business for generating income, the value of such
assets is decreased. It is called โwearโ and โtearโ. It is
main cause of depreciation.
๏ Passage of time. Every asset has a certain economic
useful life. With the passage of time effective life of the
assets goes on decreasing. Certain assets like a lease,
have a certain legal life. With the passage of time,
value of such assets goes down, even may not be
actually used in the business.
9
10. Causes of Depreciation
๏ Depletion. Depletion is reduction of natural resources. In
case of wasting assets, depletion is also a cause of fall in the
value of assets like, mines, oils wells, quarries, etc.
๏ Obsolescence. Due to invention of new technology, the
assets based on old technology may become obsolete and
out of date.
๏ Accidents. Accidents may also cause a permanent fall in
the useful life as well as in the value of assets.
๏ Permanent fall in price. A permanent fall in the market
value of investments is recorded as depreciation. Other
assets are depreciated on the basis of its useful life.
10
11. Objectives of Providing Depreciation
๏ To ascertain the true and fair profits
๏ To show the asset at its proper value
๏ To make arrangement of funds for replacement of
fixed asset
๏ Ascertaining accurate cost of production
๏ To comply with legal provisions
๏ To avail tax benefits
11
12. Factors affecting the amount of depreciation
Assessment of depreciation and the amount to be
charged in respect thereof in an accounting period are
usually based on the following three factors:
i. historical cost or other amount substituted for the
historical cost of the depreciable asset when the
asset has been revalued;
ii. expected useful life of the depreciable asset; and
iii. estimated residual value of the depreciable asset.
12
13. Historical Cost
๏ Historical cost of a depreciable asset represents its
money outlay or its equivalent in connection with its
acquisition, installation and commissioning as well as
for additions to or improvement thereof.
๏ The historical cost of a depreciable asset may undergo
subsequent changes arising as a result of increase or
decrease in long term liability on account of exchange
fluctuations, price adjustments, changes in duties or
similar factors.
13
14. The useful life of a depreciable asset
The useful life of a depreciable asset is shorter than its physical
life and is:
i. pre-determined by legal or contractual limits
ii. directly governed by extraction or consumption;
iii. dependent on the extent of use and physical deterioration
on account of wear and tear which again depends on
operational factors, such as, the number of shifts for which
the asset is to be used, repair and maintenance policy of the
enterprise etc.; and
iv. reduced by obsolescence arising from such factors as: (a)
technological changes; (b) improvement in production
methods; (c) change in market demand for the product or
service output of the asset; or (d) legal or other restrictions.
14
15. Relevant Accounting Principles
๏ Cost Principle
๏ Matching Principle
๏ Going Concern Principle
๏ Consistency: The depreciation method selected should
be applied consistently from period to period.
๏ Disclosure
15
16. Methods of Providing or Allocating Depreciation
Important Methods:
๏ Straight Line Methods
๏ Written Down Value Method
16
17. Methods of Providing or Allocating Depreciation
๏ Other Methods:
๏ Sinking Fund Method
๏ Annuity Method
๏ Insurance Policy Method
๏ Revaluation Method โ Loose Tools
๏ Depletion Method โ Mines, Oil-wells, etc.
๏ Machine Hour Rate Method
17
18. Straight Line Method of depreciation
๏ Under this method depreciation is charged by a given
rate of depreciation on the original cost of the asset
every year.
๏ Due to this reason depreciation charged annually
remains fixed and so the method is called โFixed
Instalment Method.
๏ This is also called original cost method as the
depreciation is charged every year on the original cost
of the asset. estimated scrap value of the asset
18
19. Straight Line Method of depreciation
๏ If rate of depreciation is not given then annual
depreciation and rate of depreciation is calculated by
applying the following formulas:
Annual depreciation
Rate of depreciation
19
asset)oflife(EstimatedyearsofNumber
ValueScrapEstimatedAssetofCost ๏ญ
๏ฝ
100
AssetofCost
onDepreciatiAnnual
๏ด๏ฝ
20. Straight Line Method of depreciation
๏ If rate of depreciation is not given then annual
depreciation and rate of depreciation is calculated by
applying the following formulas:
Annual depreciation
Rate of depreciation
20
asset)oflife(EstimatedyearsofNumber
ValueScrapEstimatedAssetofCost ๏ญ
๏ฝ
100
AssetofCost
onDepreciatiAnnual
๏ด๏ฝ
21. Example: A firm purchased a machine for Rs, 1,75,000
and spent installation charges Rs. 45,000. Itโs economic
life is 10 years and estimated residual value after 10
years is Rs. 20,000. Charge depreciation by SLM.
Annual Depreciation=
2,20,000 โ20,000
10
= 20,000
21
22. Straight Line Method of depreciation
๏ When depreciation charged in various years is put on a
graph, it gives a straight line parallel to OX axis. Due to
this reason this method is called straight line method.
22
0
5000
10000
15000
20000
25000
0 1 2 3 4 5 6
Depreciation
Depreciation
23. Merits of Straight Line Method of Depreciation
๏ Simple. Every year a fixed amount is charged as depreciation.
Calculation of depreciation is also very simple.
๏ Asset is completely written off. If an asset continues with a
firm for the whole of its useful life and depreciation is provided
by SLM, it will be completely written off. Only scrap value of the
asset, if any, will be left in the asset account.
๏ No window dressing. A fixed amount of depreciation is charged
to the profit and loss account every year. The effect of
depreciation on profit is equal and chances of manipulating
profits are very less.
๏ Knowledge of original cost and total depreciation charged.
23
24. Calculation of Depreciation and WDV โ SLM
Example: Cost of machine โ Rs. 77,760, useful life โ 5
years, estimated scrap value after 5 years โ Rs. 31,250
Charge depreciation by SLM
24
Annual Depreciation=
77,760 โ31,250
5
= 9,302
Rate of Depreciation =
9,302
77,760
100 = 11.92%
25. Straight Line Method
Calculation of Depreciation and WDV
Year Op. WDV
(Rs.)
Rate of Dep Dep.
(Rs.)
Clo. WDV
(Rs.)
1 77,760 11.92% 9,302 68,458
2 68,458 11.92% 9,302 59,156
3 59,156 11.92% 9,302 49,854
4 49,854 11.92% 9,302 40,552
5 40,552 11.92% 9,302 31,250
25
26. Demerits of Straight Line Method of Depreciation
๏ Unequal charge against income. Total charge on account
of using fixed assets comprises depreciation plus repairing
charges. Under SLM, depreciation charged is fixed but
repairing charges go on increasing year by year. Thus total
charge against income goes on increasing.
๏ Year Depreciation Repairs Total Charge
1 20,000 nil 20,000
2 20,000 1,000 21,000
3 20,000 3,000 23,000
4 20,000 5,000 25,000
26
27. Demerits of Straight Line Method of Depreciation
๏ Interest factor ignored. When a fixed asset is purchased,
the amount is invested permanently. If the amount would
have been invested outside the firm, the interest would
have been received on it. Thus, the loss of interest is
ignored, while calculating depreciation.
๏ Undue pressure in later years. Under fixed instalment
method, the total charge against the income goes on
increasing year by year, while efficiency of asset goes on
decreasing. Thus, the pressure in later years is unduly high.
๏ Difficult to estimate scrap value
27
28. Demerits of Straight Line Method of Depreciation
๏ Unsuitable for long term assets. The assets having long
life, requires several addition and extension from time to
time. This method is not suitable for them. It is also not
suitable for assets having heavy investment.
๏ No provision of funds for replacement. In this method
amount charged as depreciation is not invested outside the
business. It is retained in the business and becomes a part
of working capital. When the asset becomes useless, the
firm has to face the problem of funds for the replacement
of asset as it becomes difficult to withdraw amount from
the working capital.
28
29. Written Down Value Method of depreciation
๏ Under this method depreciation is charged at a fixed rate
on the opening balance of the asset. This balance is
reduced every year. Thus, the amount of depreciation also
goes on reducing year after year.
๏ Thus, it is clear that under this method value of asset as
well as depreciation charged goes on reducing every year.
Due to this reason this method is also called โReducing
Instalment Method.โ The value of asset left after charging
depreciation is called, written down value. Due to this
reason, this method is called โWritten Down Value
Method.โ
๏ The rate of depreciation charged under this method is
higher than that charged in straight line method.
29
30. Calculation of rate of depreciation under WDV method
๏ R = {1 -
๐ ๐
๐ถ
}*100
๏ R = Rate of Depreciation
๏ N = useful life of the asset
๏ S = Scrap value of the asset
๏ C = Cost of the asset
30
31. Calculation of rate of depreciation under WDV method
๏ R = {1 -
๐ ๐
๐ถ
}*100
๏ R = Rate of Depreciation
๏ N = useful life of the asset = 5 years
๏ S = Scrap value of the asset = 31,250
๏ C = Cost of the asset = 77,760
๏ R = {1 -
5
6
}*100 = 16.67%
31
32. Calculation of Depreciation and WDV
Year Op. WDV
(Rs.)
Rate of
Dep
Dep.
(Rs.)
Clo. WDV
(Rs.)
1 77,760 16.67% 12,960 64,800
2 64,800 16.67% 10,800 54,000
3 54,000 16.67% 9,000 45,000
4 45,000 16.67% 7,500 37,500
5 37,500 16.67% 6,250 31,250
32
33. Merits of Written Down Value Method of depreciation
๏ Simple. Calculation of depreciation is very simple as the
depreciation is charged every year on the opening balance
of the asset. Depreciation on additional assets purchased
during the year is calculated separately. There is no need to
remember original cost of the assets.
๏ Equal charge against income. Under this method
depreciation charged is reduced every year, while repairing
charges are increased. Thus, the total charge against
income remains the same, more or less.
๏ No undue pressure in later years.
๏ Approved by taxation authorities.
33
34. Example: Based on the example with assumed
repairs and maintenance charges
Straight Line Method WDV Method
Year Dep Repairs Total
charge
Dep Repairs Total
charge
1 9,302 0 9,302 12,960 - 12,960
2 9,302 1,100 10,402 10,800 1,100 11,900
3 9,302 2,300 11,602 9,000 2,300 11,300
4 9,302 3,800 13,102 7,500 3,800 11,300
5 9,302 5,500 14,802 6,250 5,500 11,750
34
35. Demerits of WDV Method of Depreciation
๏ Difficulty in determining the rate of depreciation. It is
very difficult to calculate a rate of depreciation which will
depreciate the asset completely. Even if an asset becomes
obsolete and useless, the books shows some balance.
๏ Interest factor ignored. Like, the fixed instalment
method, interest factor is ignored in diminishing balance
method also.
๏ No provision of funds for replacement. Like the fixed
instalment method, the amount charged as depreciation is
not invested outside the business. It creates problem, while
replacing the asset, when it becomes useless.
35
36. Demerits of WDV Method of Depreciation
๏ Asset can not be completely written off. Under
diminishing balance the value of asset is not completely
written off. The asset account continues in the books, may
be a very small amount, even after the asset becomes
obsolete and useless.
๏ No information about original cost and accumulated
depreciation. Under this method the asset account shows
the reduced balance after charging depreciation. Assets are
grouped on the basis of rate of depreciation and it becomes
difficult to know the original cost and accumulated
depreciation on any specific fixed asset.
36