Accounting standard 6 Presentation
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This document summarizes Accounting Standard 6 (AS-6) on depreciation accounting. It defines depreciation and outlines the key features and causes of depreciation. It discusses depreciable assets and the applicability of AS-6. The document also explains the different methods for calculating depreciation and conditions for changing the depreciation method. It provides guidance on the disclosure requirements for depreciation as per AS-6 and concludes with important points about the standard.
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(7) Depletion Unit or Production Unit Method
(8) Machine Hour Method
(9) The sum of the years Digits Method
(10) The use or Mileage Method
(11) Group Depreciation Method
Here we will study only fixed installment method and amortizing method, which are most popular.
Straight Line Method or Fixed Instalment Method
There are many names of this method, such as—
(i) Straight Line Method,
(ii) Original Cost Method,
(iii) Equal Instalment Method,
(iv) Fixed Instalment Method. Fixed Instalment Method. Under this method, depreciation is calculated at a fixed percentage on the original cost of the asset every year. Obviously, there will be the same amount of depreciation each year. That is why it is called a fixed instalment or ‘prime cost’ method. If the depreciation is marked on the graph paper and all the points are joined then a straight line will be formed. That’s why it is called ‘straight line method’ or straight line method.
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Accounting standard 6 Presentation
- 1. Topic: AS-6 Submitted To: DR. Harsh Pratap Singh Assistant Professor (Finance) Presented By: Team Members 1. Aman kumar Verma (GM17027) 2. Aayush Agarwal (GM17001) 3. Abhinendra Singh (GM17007) 4. Amit Kumar Tiwari (GM17029) 5. Radha Sharma (GM17273) 6. Akansha Chakravorty (GM17019) Accounting For Managers Presentation PGDM Batch 2017-2019 Term I Section __A___ Team No. __01___
- 2. *Meaning & Definition *Features & Causes of Depreciation *Depreciable Assets *Applicability of AS-6 *Calculation of Depreciation *Methods of Depreciation *Change in method of Depreciation *AS-6 Disclosure *Important points of AS-6
- 3. *Depreciation means decline in the value of fixed assets on a/c of use & effluxion of time. *Depreciation is a gradual, continuous & permanent decrease in the value of an asset. * It was issued in 1982 by ICAI & later on revised in 1994.
- 4. *AS-6,Depreciation Accounting defines depreciation as 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 or market changes.
- 5. *Features of Depreciation Depreciation is a part of operating cost. It is a reduction in the value of an asset. The decrease in the value of an asset is gradual & continious. Causes of Depreciation Physical wear & tear Physical Deterioration Expiry of legal rights Obsolescence
- 6. Depreciable Assets are those assets which: 1. are expected to be used for more than 1 accounting period. 2. Have a limited useful life. 3. Are held for the purpose of production of goods & services.
- 7. AS-6 is applicable to all depreciable assets, except the following: i. Forests, Plantation ii. Wasting Assets, Minerals iii. Expenditure on R & D iv. Goodwill v. Live-stock cattle, Animal Husbandry
- 8. The amount of Depreciation is calculated as under: 1) Historical cost of the asset. 2) Estimated useful life of depreciable asset. 3) Estimated residual/scrap value of depreciable assets.
- 9. Depreciable Amount = Historical Cost- ERV E.g: Cost of asset=500000, ERV=25000 Depreciable Amount = H.C –ERV =500000-25000 = 475000. Depreciable amount is allocated over the estimated useful life of depreciable asset.
- 10. 1. Straight Line Method 2. Reducing Balance Method 3. Sinking Fund Method 4. Insurance Policy Method 5. Sums of the digit Method 6. Revaluation Method 7. Depletion Method 8. Machine Hour Rate Method 9. Replacement Method
- 11. Changes in Depreciation Method Change in method of Depreciation is done in the following conditions: For compliance of status For compliance of AS’s For more appropriate presentation of the financial statement
- 12. *The Depreciation method used, the total depreciation for the period, gross amount of depreciation of each class has to be disclosed in the Financial Statements. * If the asset is revalued , the provision for depreciation is based on the revalued amount. *A change in method of depreciation is treated as change in an accounting policy. *Accumulated Depreciation for each class of asset
- 13. *Any addition or extension becomes an integral part of the existing asset. Hence it is depreciated over the remaining useful life of the asset. *Depreciation on Items Below Rs 5000/- *Schedule 2 of Company Act 2013, individual items of fixed assets below Rs. 5000. There is no such concept.
- 14. *When the depreciable asset is disposed off, discarded, demolished, destroyed; the net surplus or deficit is charged to P/L A/C. *The useful life of a depreciable asset should be estimated after considering factors like wear & tear, obsolescence etc. *The useful life of major depreciable assets may be periodically reviewed.
- 15. *Increase or Decrease in long term liability on account of exchange fluctuations, price adjustments etc, the depreciation should be provided prospectively. *But when there is a change in historical cost due to revaluation, depreciation should be charged on the basis of revalued amount & on the estimate of the remaining useful life of such assets.