This document discusses depreciation, which refers to the reduction in value of fixed assets over time due to usage and age. It defines depreciation and lists assets that are depreciated, such as machinery, furniture, vehicles, and electronics used for business. The objectives and causes of depreciation are outlined. Several depreciation methods are presented, including the straight-line method and written down value method. Examples are provided to illustrate how to calculate depreciation using each method. The advantages and disadvantages of the straight-line and written down value methods are also summarized.

1. DEPRECIATION
PRESENTED BY :-
1) NIKHIL MHATRE
2) ROSHAN TUPE

2. What does Depreciation
means….?
The word depreciation has derived from
Latin word ‘Depretium’ which means
“decline "or “reduction "in price or value.
Depreciation is concerned with fixed assets
only. Fixed assets have Long life and loose
their value due to usages. Even if the asset is
not put to use, its value goes on reducing
due to time span.
In Simple Words :-
a reduction in the value of an asset over
time, due to particular wear and tear.

3. Assets which gets
Depreciated…?
1) Machinery
2) Furniture

4. 3) Vehicles
4) All Electronics
Items use for
Business purpose

5. Objectives of Depreciation
 To calculate proper profits.
 To show the asset at its reasonable value.
 To maintain the original monetary investment
of the asset intact.
 Provision of depreciation results in some
incidental advantages also.
 To provide for replacement of an asset.
 Depreciation is permitted to be deducted from
profits for tax purposes.

6. Causes of Depreciation
 .Internal causes : wear and tear, disuse, maintenance, change in
production, restriction of production, reduced demand, technical
progress & depletion.
 .External causes : obsolescence and efflux ion of time

7. Method of Depreciation
Depreciation
Written
Down Value
Method
Straight Line
Method
Sum of the
Years’ Digits
Method
Units of
Production
Method
Double
Declining
Balance
Method Appraisal
Method
Sinking
Fund
Method
Annuity
Method
Insurance
Policy
Method

8. Straight Line Method
This Method is also known as “Fixed instalment Method” or
“Original Cost Method”.
Under this method depreciation is calculated every year on the
original cost of the Asset (Cost = Purchase price + All expenses)
incurred till the asset is put in the form of use.eg. Transportation,
Octroi, Duties & Installation charges..
Formula :-
Depreciation = Original Cost X Rate of Depreciation X Period

9. Example:-
M/s Manoj P.Ltd purchased a Machinery on 1st Oct 2011 at Rs.90,000 and
Spent Rs.10,000 on its installation. The firm provide depreciation at 10% p.a.
under Straight Line Method on 31st March every year.
Show Machinery Account for 2011-12, 2012-13.
In the books of M/s Manoj P.Ltd
Dr. Machinery Account Cr.
Date Particulars J.F Amt Date Particulars J.F Amt
2011 2012
Oct.1 To Bank A/c (Machinery) 90,000 Mar.31 By Depreciation A/c
Dep.1,00,000 X 10% X 6
12
5,000
Oct.1 To Bank A/c (Installation) 10,000 Mar.31 By Balance c/d 95,000
1,00,000 1,00,000
2012 2013
Apr.1 To Balance b/d 95,000 Mar.31 By Depreciation A/c
Dep.1,00,000 X 10% X 12
12
10,000
Mar.31 By Balance c/d 85,000
95,000 95,000
2013
Apr.1 To Balance b/d 85,000

10. Advantages & Disadvantages
of Straight line method
Advantages:
Simple, easy to understand and to apply
It provides uniform charge every year
It’s calculated on original cost over the life time
Disadvantages:
Depreciation is not related to the usage factor
It ignores the fact that in the later years of the life of the asset,
efficiency of the asset declines.
Loss of interest on investment in the asset is not accounted
for…

11. Written Down Value Method
This Method is also known as “Reducing Balance Method” or
“Diminishing Balance Method”.
Under this method depreciation is calculated on the written down
value (i.e opening balance of every year) of the asset. Under this
method, the amount of depreciation keeps on declining every year..

12. Example:-
M/s Prajakta & Son’s purchased a Machinery on 1st Oct 2011 at Rs.90,000
and Spent Rs.10,000 on its installation. The firm provide depreciation at
10% p.a. under Written Down Value Method on 31st March every year.
Show Machinery Account for 2011-12, 2012-13.
In the books of M/s Prajakta & Son's
Dr. Machinery Account Cr.
Date Particulars J.F Amt Date Particulars J.F Amt
2011 2012
Oct.1 To Bank A/c (Machinery) 90,000 Mar.31 By Depreciation A/c
Dep.1,00,000 X 10% X 6
12
5,000
Oct.1 To Bank A/c (Installation) 10,000 Mar.31 By Balance c/d 95,000
1,00,000 1,00,000
2012 2013
Apr.1 To Balance b/d 95,000 Mar.31 By Depreciation A/c
Dep.95,000 X 10% X 12
12
9,500
Mar.31 By Balance c/d 85,500
95,000 95,000
2013
Apr.1 To Balance b/d 85,500

13. Advantages & Disadvantages
of Written down value method
Advantages:
It’s a simple method of providing depreciation as a fixed rate is
applied on book-value or written down value of assets.
This method is quite popular
It provides uniform charge for charge for services of the asset
through out the life
Disadvantages:
The method is slightly complicated
If the asset has no residual value, it is very difficult to calculate
the rate.