Depreciation accounting ppt @ bec doms 2009

1. Depreciation Accounting

2. Depreciation Accounting
Definition
A measure of the wearing out, consumption or
other loss of value of depreciable assets arising
from use, efflux of time or obsolescence through
technology and market changes.”

3. Depreciation Accounting
Definition Analysis
Allocation of depreciable amount of a fixed asset
over its estimated useful life
Depreciation is a non-cash expense and is
charged to Profit & Loss a/c each year
Depreciation is based on cost of asset

4. Depreciation Accounting
Causes of Depreciation
Use/consumption
Efflux of time
Abnormal factors
Obsolescence

5. Depreciation Accounting
Need for charging Depreciation
To ascertain the true & fair profit or loss of the
organisation
 To reveal the true & fair financial position of the
organisation
To provide funds for replacement
To compute the correct tax liability

6. Depreciation Accounting
Accounting for Depreciation
(C)Methods of determining the amounts of
depreciation.
(B) Accounting treatment

7. Depreciation Accounting
(A) Methods of determining the amounts of
depreciation
2 methods

8. Depreciation Accounting
Fixed Instalment Method/Straight Line Method
CALCULATION OF DEPRECIATION
Original cost of asset – Estimated scrap value
Life of the asset

9. Depreciation Accounting
Original Cost of the Asset

10. Depreciation Accounting
Original Cost includes
- Payment to vendor
- Transportation
- Customs duty, in case of import of asset
- Transit Insurance
- Commission paid on purchase of asset
- Installation charges
- Initial repairs to second hand assets
- Registration cost
- Special costs incurred

11. Depreciation Accounting
Estimated Scrap Value

12. Depreciation Accounting
Life of the Asset
Factors Responsible
- Nature of the product
- Quality of machine
- Legal requirements
- Use of machine
- Maintenance of asset
- Replacement policy

13. Depreciation Accounting
Diminishing Balance Method/Written Down
Value Method

14. Depreciation Accounting
(B) Accounting treatment

15. Depreciation Accounting
AS – 6 Depreciation Accounting

16. Depreciation Accounting
APPLICABILITY
Forests, plantations and similar regenerative natural
resources.
Wasting Assets – Oil wells, Coal mines etc.
Expenditure on research and development, whether
successful or unsuccessful.
Goodwill
Livestock
Land, unless it has a limited useful life for the
organisation

17. Depreciation Accounting
Change in the method of Depreciation
Statutory requirement arises
Compliance with the Accounting Standard
If the change would result in a more
appropriate preparation or presentation of the
financial statements

18. Depreciation Accounting
Disclosure in Financial statements
Historical cost of each asset
Total depreciation for the period
The method of depreciation being used
Rate of depreciation
Useful life of the asset

19. Depreciation Accounting
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