The document provides a comprehensive overview of depreciation accounting, detailing definitions, types of depreciation (Straight Line Method and Written Down Value Method), calculation formulas, and recording methods. It includes practical examples and journal entries for various scenarios, such as acquisition, depreciation provision, and sale of assets, emphasizing the importance of proper accounting entries. Additionally, it covers changes in depreciation methods and provides multiple illustrative cases for better understanding.

1. Depreciation
Accounting
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2. 1. What is Asset ?
2. Depreciation , types of depreciation and
formulas (SLM &WDVM)
3. Rate of depreciation under SLM and WDV
4. Basic entries
5. Change of depreciation method and entries
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3. Depreciation : Spreading / distribution of cost of
asset over its life. Or reduction in value of asset
due usage, wear and tear and etc.
Eg: Cost of asset: 10000, life time 4 years: spreading
of 10000 over the life of asset( 4 years)= 2500 P.A
Methods:
1. Straight line( On acquisition value)
2. Written down value( on Net asset Value)
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4. Methods:
1. Straight line ( On acquisition value) formula:
(cost of asset- scrap value)/ life of the asset.
A. rate of Dep: (Depreciation amount/original cost of asset)
2. Written down value( on Net asset Value)
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5. Differences Between Straight and Written Down Value Method with simple
example
Straight line
method
Asset value Written down
value method
Asset value
Cost of asset 10000 Cost of asset 10000
Depreciation rate:10% under both methods
Year 1 (10% of 10000)=1000 10000-1000= 9000 10% of(10000)=1000 10000-1000=9000
Year 2 (10% of 10000)=1000 9000-1000=8000 10% of (9000)=900 9000-900=8100
Year 3 (10% of 10000)=1000 8000-1000=7000 10% of (8100)=810 8100-810=7290
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6. Recording methods:
1. Charging to asset account
Entry: Dr. Depreciation
Cr. Asset A/c
2. Charging to accumulated depreciation A/c
Entry : Dr. Depreciation
Cr. Accumulated depreciation
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7. Basic entries: First Year
1. On acquisition: Dr. Asset
Cr. Cash or Bank
2. On providing depreciation at the end of year:
Dr: Depreciation
Cr: Asset (or) Acc.Dep. A/C
(this entry will be repeated every year ending)
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8. 3. On transfer of depreciation to P/L A/c
Dr. P/L A/c
Cr. Depreciation A/c
(This entry will be repeated every year ending)
4. On sale of asset:
Dr. Bank/Cash
Dr. Depreciation(Current Period)
Dr. Loss on sale of Asset( Incase of loss)
Cr. Profit on sale of asset(Incase of Profit)
Cr. Asset Account(Net asset value of current year)
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9. 4. On sale of asset: (Incase Dep. charged to
accumulated Depreciation account)
Dr. Bank/Cash
Dr. Acc. depreciation(from Acquisition to
sale of asset date )
Dr. loss on sale of Asset( incase of loss)
Cr. Profit on sale of asset(Incase of Profit)
Cr. Asset Account(original purchase value of
plant)
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10. 5. On transfer of profit or loss to P/L A/c
For loss:
Dr. P/L A/c
Cr. Loss on sale of asset
For profit:
Dr. Profit on sale of asset
Cr. P/L A/c
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11. 6. On change of depreciation method:
1. If old method depreciation amount is over
and above the new method depreciation
amount:
Dr. Asset/ Acc. Depreciation A/c
Cr. P/L A/c
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12. 2. If the new method depreciation amount is
over and above the old method amount:
Dr. P/L A/c
Cr. Asset A/c/ Acc. Depreciation A/c
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13. On 1-1- 2010 X Ltd. acquired a Plant with a life of 5 years
for cash Rs: 10000. Estimated scrap value at the end of
life of plant Rs:500. Company decided to depreciate
asset under SL method and books closed on 31st Dec of
every year (Depreciation Charged to Asset account).
You are requested to:
1. Calculate the depreciation amount and depreciation
Rate.
2. Prepare Depreciation a/c and plant a/c for 2010,
2011, 2012, 2013 and 2014
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14. Working note:
1. Calculation of depreciation:
(Cost of asset- scrap value)/life of the asset
=(10000-500)/5 years=1900
2. Depreciation rate:
(Depreciation Amount/original cost of asset)*100
(1900/10000)X100=19%
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15. Plant A/c
Dates Particulars Amount Dates Particulars amount
1.1.2010 To Cash A/c 10000 31.12.2010 By Dep A/c
By Bal C/d
1900
8100
10000 10000
1.1.2011 To Bal b/d 8100 31.12.2011 By Dep A/c
By Bal C/d
1900
6200
8100 8100
1.1.2012 To Bal B/d 6200 31.12.2012 By Dep
By Bal c/d
1900
4300
6200 6200
1.1.2013 To Bal b/d 4300 31.12.2013 By Dep
By Bal c/d
1900
2400
4300 4300
1.1.2014 To Bal b/d 2400 31.12.2014 By Dep
By Cash(scrap)
1900
500
2400 2400
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16. On 1-1-2011 Tata limited acquired a machinery for
Rs: 50000. On 1-6-2011 acquired another similar
machinery for Rs: 25000. 0n 1-4-2012, ½ of the
machinery which was purchased on 1-1-2011
sold for Rs: 20000 due to some technical issue.
Company decided to charge 10% depreciation
under SLM on the machineries. You are requested
to prepare depreciation A/c, Machinery A/c and
profit and loss account for 2011, 2012 and 2013
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17. Machinery A/c
Dates Particulars Rs: Dates Particulars Rs:
1.1.2011 To Cash a/c 50000 31.12.2011 By
Depreciation(5000+1458)
6458
1.6.2011 To Cash a/c 25000 31.12.2011 By Balance c/d 68542
Total 75000 Total 75000
1.1.2012 To Balance b/d 68542 1.4.2012 By cash 20000
By depreciation 625
By loss on sale of asset 1875
31.12.2012 By depreciation 5000
By balance c/d 41042
Total 68542 Total 68542
1.1.2013 To balance b/d 41042 31.12.2013 By Depreciation 5000
By balance c/d 36042
41042 41042
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18. On 1-1- 2010 acquired a Plant for Rs: 10000.
Company decided to depreciate asset @ 20%
under written down value method
(Depreciation Charged to Asset account). You
are requested to:
1. Prepare Depreciation a/c and plant a/c for
2010, 2011, 2012, 2013 and 2014
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19. Plant A/c
Date Particulars Rs: Date Particular Rs:
1.1.2010 To Plant 10000 31.12.2010 By Depreciation
By Balance c/d
2000
8000
10000 10000
1.1.2011 To Balance b/d 8000 31.12.2011 By Depreciation
By Balance c/d
1600
6400
8000 8000
1.1.2012 To Balance b/d 6400 31.12.2012 By Depreciation
By Balance c/d
1280
5120
6400 6400
1.1.2013 To Balance b/d 5120 31.12.2013 By Depreciation
By Balance b/d
1024
4096
5120 5120
1.1.2014 To Balance b/d 4096 31.12.2014 By Depreciation
By Balance c/d
819
3277
4096 4096
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20. On 1-1-2011 Tata limited acquired a machinery with
for Rs: 50000. On 1-6-2011 acquired another
similar machinery for Rs: 25000. 0n 1-4-2012,
½ of the machinery which was purchased
on 1-1-2011 sold for Rs: 20000 due to some
technical issue. Company decided to depreciate
machineries @10% under Written Down Value
Method.
You are requested to prepare depreciation A/c,
Machinery A/c and profit and loss account for
2011, 2012 and 2013
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21. Working notes
1. Depreciation
Plant 1 Plant2
50000 25000
1st year(12m) (5000) (for 5m) (1042)
45000 23958
Less sale (22500)(net) --------
22500 23958
2nd year dep (2250) (2396)
20250 21562
3rd Year (2025) (2156)
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22. Working notes
1. For loss/profit on sale of asset:
½ of 50000= 25000
depreciation till 31.12.2011 (2500)
22500
depreciation till 31.3.2012 (563)
net asset value on sales date 21937
sale value of the asset 20000
Loss on sale of plant 1937
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23. Change in depreciation Method:
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24. 1. Calculate depreciation under old method till the
previous year to the change of depreciation year (only
on available asset. Disposal value will be ignored).
2. Calculate depreciation under new method till the
previous year to the change of depreciation.
3. Find the difference and charge to profit and loss
account.(O>N= Cr P/L A/c, N>O= Dr P/L A/c).
4. Calculate depreciation under new method from the
beginning of change of depreciation method year.
Change need to be taken into consideration while
calculating depreciation
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25. On 1-1-2011 Bharat Ltd. Purchased two machines I
and II. Costing Rs: 50000 each and provided
depreciation @ 10% P.A. on straight line method
basis. At the end of 2014, the company decided
to change the method of depreciation from
straight line to written down value method
retrospectively, the rate of depreciation
remaining the same. (without sale of asset)
Prepare machinery accounts, depreciation and
profit and loss account up to 2014(11.30)
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26. On 1-1-2011, X Ltd. Purchased a machine for Rs: 58000 and
spent Rs: 2000 on its erection. On 1-7-2011, an additional
machinery costing Rs: 20000 was purchased. On 1-7-2013 the
machine purchased on 1.1.2011 was sold for Rs: 28600 and on
the same date a new machine was purchased at a cost of Rs:
40000. depreciation was provided for annually on 31st
December of every year, at the rate of 10% p.a. on written
down value of the machinery. In 2014 the company decided
to change the method of depreciation from written down
value method to SLM @ 5% p.a. with effect from 1-1-
2011.(11.35)
Prepare necessary accounts for the first four calendar years.
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27. First year dep:
On 58000+2000= 60000 for 12 months =6000
On 20000 for 6 months: 20000X10%X6/12=1000
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28. Reserve for
Repairs, Maintenance
and Renewals
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29. Provisions are created to meet future uncertainties or losses.
These are created and charged to the current year profit
and loss account. Following entries will be passed:
1. Dr. Profit and loss account(when provision created)
Cr. Provision for Repairs and renewals
2. Dr. Repairs and renewals(when actual repairs incurred)
Cr. Cash
3. Dr. Provision for Repairs and renewals
(when actual expenses adjusted with provision created)
Cr. Repairs and renewals
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30. Sambattina Rambabu 30

31. A ltd purchased a machinery for Rs: 30000 on 1st
April, 2010 and incurred Rs: 10000 towards
installation. It was estimated that its life is 4 years
during which period a sum of Rs: 15000 is likely
to be spent on its repairs and maintenance and at
the end of useful life, the scrap value will be Rs:
5000. Actual repairs were as below: 2011-Nill,
2012-2500, 2013—5000, 2014—7500. At the end
of useful life, the scrap value of the machine
realised Rs: 4000 only. Prepare machinery
account and provision for repairs and
maintenance account till 2014.
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32. Steps
1. Calculate depreciation after considering the
repairs and renewals amount.
2. Charge depreciation amount to profit and
loss account(Dr) and Provision for repairs and
renewals (Cr).
3. Transfer the repairs and renewals to
Provision for repairs and renewals.
4. Close the asset account with provision for
repairs and renewals.
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33. Sambattina Rambabu 33

34. Sambattina Rambabu 34

35. Sambattina Rambabu 35

36. On 1st January 1997, Jyothi Ltd. purchased a machine for
Rs.50,000, which was expected to last for 4 years; its salvage
value was estimated at Rs.7,500. The repairs and
maintenance charges were estimated to be Rs. 17,500 during
the lifetime of the asset.
Actual expenses for repairs and maintenance during 1997,
1998, 1999 and 2000 had been Rs. 1,000, Rs.4,000, Rs.5,500,
and Rs.6,500 respectively.
At the end of fourth year, the machine is sold at Rs.7, 500.
Prepare necessary accounts using an equitable method of
charging depreciation and maintenance expenses.
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37. Sambattina Rambabu 37
Provision for repairs and maintenance

38. Sambattina Rambabu 38

39. On 1-4-2000, Mr. A acquired a plant costing Rs:400000
with a life of five years and it is estimated that at the
end of the useful life of the plant the scrap value is
Rs:25000. during life of the plant, estimated plant
repairs and maintenance expenses amounted to Rs:
55000. following expenses were spent during: In 2001-
Rs: 4500, 2002-Rs:2000, 2003-Rs:1500, 2004-Rs:3500
and 2005-Rs: 1000. (Year ending is on 31st March of
every year)
You are required to calculate provision for Repairs and
depreciation and prepare plant account and provision
for repairs and depreciation account till the end of life
of the plant.
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Example:

40. Dr Plant Account Cr
Date Particulars Amount Date Particulars Amount
1.4.2007 TO CASH 25000031.3.2008 BY BALANCE C/D 250000
250000 250000
1.4.2008 TO BALANCE B/D 25000031.3.2009 BY BALANCE C/D 250000
250000 250000
1.4.2009 TO BALANCE B/D 25000031.3.2010 BY BALANCE C/D 250000
250000 250000
1.4.2010 TO BALANCE B/D 25000031.3.2011 BY BALANCE C/D 250000
250000 250000
1.4.2011 TO BALANCE B/D 25000031.3.2012 BY BANK -SCRAP 15000
31.3.2012
TO PROFIT & LOSS
ACCOUNT 5000
BY PROVISION
FOR DEPRECIATION
AND REPAIRS 240000
255000 255000
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41. DEPRECIATION
SUMS
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42. On 1st July, 2001, Taj Ltd purchases second hand machinery for
Rs. 20,000 and spends Rs. 3,000 on reconditioning and
installing it. On 1st January, 2002, the firm purchases new
machinery worth Rs. 12,000. On 30th June, 2003, the
machinery purchased on 1st January, 2002 was sold for Rs.
8,000 & on 1st July, 2003, fresh plant was installed. Payment
for this plant was to be made as follows: 1st July, 2003 Rs.
5,000., 20th June, 2004 Rs. 6,000, 30th June, 2005 Rs. 5,500,
Payments in 2004 & 2005 include interest Rs 1,000 & 500
respectively. The company writes off 10% on the original cost.
The accounts are closed every year ending 31st March, 2004.
Show the Machinery account for three years ending 31st March,
2004.
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Example-1

43. On 1.1.2008, the cost of the machinery in use with a
firm was Rs. 5,00,000 against which the depreciation
provision stood at Rs. 1,91,900 on that date. The firm
provided depreciation at 10% per annum on straight-
line method. The firm started its business in 2004.
On 30.9.2008, two machines costing Rs. 30,000 and
Rs. 24,000 respectively, both purchased on 1.7.2005,
were discarded because of damage and replaced by
two new machines costing Rs. 40,000 and Rs. 30,000
respectively.
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Example:2

44. One of the discarded machines was sold for Rs.
16,000; against the other it was expected that
Rs. 6,000 would be realized. Show the
Machinery Account, Depreciation account,
Provision for Depreciation account and
Machinery Disposal account
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45. Gangadhar & co has been running a crusher from the
year 2005. Written down value of Machinery is Rs.
1,20,000 as on 1st Jan, 2006. The firm has purchased a
second machine for Rs. 40,000 on 1st April, 2007 and
has sold the same for Rs. 65,000 on 1st Jan, 2008. The
firm has been following diminishing balance method
from the beginning. Depreciation rate for the machine
has been 10%. Accounts are closed at the end of
calendar year.
Show the Machinery account for the years 2006 to 2008.
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Example:3

46. A manufacturing firm purchased on 1st January, 1996
certain machinery for Rs. 1,00,000 and spent Rs. 2,000
on erection. On 1st July in the same year, additional
machinery costing Rs. 50,000 was acquired. On 1st
January, 1998, the machinery purchased on 1st January
1996 (having become obsolete) was auctioned for Rs.
40,000 and on the same date, fresh machinery was
purchased at a cost of Rs. 25,000. Depreciation was
provided, annually, on 31st December at 10% per
annum on the original cost of the asset. In 1998, this
method was changed and that of writing of 15% on the
written down value was adopted, with retrospective
effect. Prepare Machinery Account from 1996 to 1999.
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Example:4

47. The plant and machinery account of Vasu & Company
Limited had a debit of Rs. 1,47,390 on 1st January,
2007. The company was incorporated in 2004 and has
been following the practice of charging depreciation
every year on diminishing balance system @ 15%. In
2007, it was decided to change the method from
reducing balance method to straight line method, with
retrospective effect from 2004 and to give effect to the
change, while preparing the final accounts for the year
ended 31st December, 2007. The rate of depreciation
remains same as before. On 1st Jan 2007, new
machineries were purchased at a cost of Rs. 50,000. All
the others were acquired in 2004. Show the plant &
machinery account from 2004 to 2007.
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Example:5

48. India ltd. Which depreciates its machinery at 10% on
diminishing balance method, had on 1st January, 2013,
Rs: 9,72,000 to the debit of machinery account.
During the year 2013, part of the machinery purchased
on 1st January, 2011 for Rs:80000 was sold for Rs:
45000 on 1st July, 2013 and a new machinery at a cost
of Rs: 150000 was purchased and installed on the same
date, installation charges being Rs:8000.
The company decided to change its method of
depreciation from diminishing balance to SLM with
effect from 1st January, 2011 and adjust the difference
on 31st December, 2013. the rate of depreciation
remains the same as before.
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Example: 6

49. Sambattina Rambabu 49
Depreciation Types
Straight line method Written down value method
Types of Recording of
depreciation
Charge the
depreciation to
Accumulated
depreciation account
Charge the
depreciation to Asset
account
Charge provision for
repairs and
maintenance and
depreciation to
provision for repairs
and depreciation
account