This document discusses various methods of calculating depreciation. It defines depreciation as a decrease in the book value of fixed assets over their useful life. The objective of depreciation is to allocate the cost of an asset over its useful life. The document describes the straight-line, declining balance, and sum-of-years digits methods. It provides examples of calculating depreciation expense for each year using these methods.
Definition of depreciation and methods of depreciation.This includes explanation of depreciation methods and problems. It contain all necessary theoretical points of depreciation along with depreciation problems that are to be solved.
Different Types of Depreciation MethodsBaqirsiddique
straight-line depreciation
The straight line method is the simplest method of depreciation in which every year a fixed amount is written off as depreciation from the value of the Asset.
There are some common factors on which their calculation depends. These factors are listed below.
According to the Diminishing Balance Method, depreciation is charged at a fixed percentage on the book value of the asset. As the book value reduces every year, it is also known as the Reducing Balance Method or Written-down Value Method.
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Meaning
Features of depreciation
Causes of depreciation
Need & importance of depreciation
Factors determining the amount of depreciation
Methods of allocating depreciation
Illustration
Exercise
Definition of depreciation and methods of depreciation.This includes explanation of depreciation methods and problems. It contain all necessary theoretical points of depreciation along with depreciation problems that are to be solved.
Different Types of Depreciation MethodsBaqirsiddique
straight-line depreciation
The straight line method is the simplest method of depreciation in which every year a fixed amount is written off as depreciation from the value of the Asset.
There are some common factors on which their calculation depends. These factors are listed below.
According to the Diminishing Balance Method, depreciation is charged at a fixed percentage on the book value of the asset. As the book value reduces every year, it is also known as the Reducing Balance Method or Written-down Value Method.
if you have any issue contact with me
My mail address
baqiralisiddique@gmail.com
Meaning
Features of depreciation
Causes of depreciation
Need & importance of depreciation
Factors determining the amount of depreciation
Methods of allocating depreciation
Illustration
Exercise
The Depreciation Methods presentation aims to provide a comprehensive understanding of various techniques used to calculate the decrease in asset value over time. By exploring different approaches to depreciation, this presentation assists in making informed decisions about long-term investment planning and maximizing asset utilization.
Definition of depreciation: Exploring the concept of depreciation as the systematic allocation of asset cost over its useful life.
Highlighting how depreciation facilitates accurate financial reporting, tax deductions, and asset replacement planning.
The Depreciation Methods presentation provides a comprehensive overview of the straight-line, declining balance, and sum-of-the-years' digits methods, equipping individuals with the knowledge necessary to leverage depreciation techniques effectively. By understanding these methods, organizations can make informed decisions to optimize asset utilization, financial reporting accuracy, and long-term investment planning.
Comparison of all three methods: Presenting a side-by-side comparison of the straight-line, declining balance, and sum-of-the-years' digits methods, highlighting their distinctive features.
Real-life applications: Showcasing real-world scenarios where each method's specific advantages make them more suitable, helping organizations make the best choice according to their asset portfolios and financial goals.
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The Depreciation Methods presentation aims to provide a comprehensive understanding of various techniques used to calculate the decrease in asset value over time. By exploring different approaches to depreciation, this presentation assists in making informed decisions about long-term investment planning and maximizing asset utilization.
Definition of depreciation: Exploring the concept of depreciation as the systematic allocation of asset cost over its useful life.
Highlighting how depreciation facilitates accurate financial reporting, tax deductions, and asset replacement planning.
The Depreciation Methods presentation provides a comprehensive overview of the straight-line, declining balance, and sum-of-the-years' digits methods, equipping individuals with the knowledge necessary to leverage depreciation techniques effectively. By understanding these methods, organizations can make informed decisions to optimize asset utilization, financial reporting accuracy, and long-term investment planning.
Comparison of all three methods: Presenting a side-by-side comparison of the straight-line, declining balance, and sum-of-the-years' digits methods, highlighting their distinctive features.
Real-life applications: Showcasing real-world scenarios where each method's specific advantages make them more suitable, helping organizations make the best choice according to their asset portfolios and financial goals.
Thank You For Contacting Skilling.pk
Website Skilling.pk
YouTube http://bit.ly/2DNz53Z
Facebook https://bit.ly/3x45gGA
Twitter http://bit.ly/2yNTqoC
Instagram https://bit.ly/3ab0HVi
TikTok https://bit.ly/3CeQNMB
Free Assignments, Thesis, Projects & MCQs https://bit.ly/3hk7PlG
Latest Jobs Diya.pk
AIOU Thesis & Projects Stamflay.com
WhatsApp
03144646739
03364646739
03324646739
Note: Due To The High Number Of Queries, Our Team Is Busy We Will Respond To You As Soon As Possible.
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3. Objective
• Its aim is to distribute the cost of the
depreciable asset over its useful life and
charge the depreciation to the Profit and Loss
A/c in order to arrive at the correct profit or
loss for the year.
4. Definition
• Depreciation can be defined as a continuing,
permanent and gradual decrease in the book
value of fixed assets .
• This type of shrinkage is based on the cost of
assets utilized in a firm and not on its market
value.
5. Features
• Depreciation is a decrease in the book value of
fixed assets.
• Depreciation involves loss of value of assets
due to the passage of time and obsolescence.
• Depreciation is an ongoing process until the
end of the life of assets.
6. Causes & Types of Depreciation
Wear & Tear
Expiration of
Legal Rights
Obsolescence Abnormal
Factors
Physical
Depreciation
Accident and
Natural
Calmaties
Technological &
Out dated Service
Functional
Depreciation
7. Methods
• Straight Line Method.
• Declining Balance Method.
• Double Declining Balance Method.
• Sum of Years Digits Method.
8. Straight Line Method
• Formula :-
Straight Line :- Cost of Asset – Salvage Value
Method Useful Life
9. Analysis
Q . Calculate the amount of annual Depreciation
and rate of Depreciation under straight line
Method(SLM) from the following purchased a
second hand machine for Rs.96,000, Spent
Rs.24,000 on its cartage, Repairs and installation,
estimated useful life of machine 4 years. Estimated
salvage value Rs.72,000.
10. Given :-
1) Cost of Asset :- Cost of Machine + Cartage
= 96,000 + 24,000
= Rs. 1,20,000/-
2) Salvage Value :- Rs.72,000/-
3) Useful Life :- 4years.
Solution :- 1,20,000 -72,000
4
= 48,000
4
= Rs. 12,000/-
11. ₹ 1,20,000.00
₹ 72,000.00
Sr Year
Net Book Value -
Residual Value
(1)
Depreciation
(2)
Value at the end
of Year
(1)-(2)
1 1st ₹ 48,000.00 ₹ 12,000.00 ₹ 36,000.00
2 2nd ₹ 36,000.00 ₹ 9,000.00 ₹ 27,000.00
3 3rd ₹ 27,000.00 ₹ 6,750.00 ₹ 20,250.00
4 4th ₹ 20,250.00 ₹ 5,062.50 ₹ 15,187.50
Straight Line Method
Formula :- (Cost of Asset - Salvage Value) / Useful Life
Net Value
Residual Value
12. Declining Balance Method
• Formula :-
Declining Balance =
( Net Book Value – Residual Value ) * Rate of
Depreciation
13. Analysis
Q . Ram purchased a Machinery costing 11,000
with a useful life of 10 years and a residual value
of 1000. The Rate of Depreciation is 20%.Find
the value of machinery till the 4th year of its life.
Solution :-
1) Given :- Initial Cost of Machinery = 11,000
Useful Life = 10years
Residual Value = 1,000
Rate of Depreciation = 20%
14. ₹ 11,000.00
₹ 1,000.00
Sr Year
Net Book Value -
Residual Value
(1)
Rate Of
Depreciation
Depreciation
(2)
Value at the end
of Year
(1)-(2)
1 1st ₹ 10,000.00 20% ₹ 2,000.00 ₹ 8,000.00
2 2nd ₹ 8,000.00 20% ₹ 1,600.00 ₹ 6,400.00
3 3rd ₹ 6,400.00 20% ₹ 1,280.00 ₹ 5,120.00
4 4th ₹ 5,120.00 20% ₹ 1,024.00 ₹ 4,096.00
Declining Balance Method
Formula :- ( Net Book Value – Residual Value ) * Rate of Depreciation
Net Value
Residual Value
15. Double Declining Balance Method
Q . Ram purchased a Machinery costing 1,00,000
with a useful life of 08 years and a residual value of
11,000. The Rate of Depreciation is 12.5%.Find the
value of machinery till the 4th year of its life.
Solution :-
Given :- Initial Cost of Machinery = 10,0000
Useful Life = 08 years
Residual Value = 11000
Rate of Depreciation = 12.5%
16. ₹ 1,00,000.00
₹ 11,000.00
Sr Year
Net Book Value -
Residual Value
(1)
Rate Of
Depreciation
Depreciation
(2)
Value at the end
of Year
(1)-(2)
1 1st ₹ 89,000.00 12.5% ₹ 22,250.00 ₹ 66,750.00
2 2nd ₹ 66,750.00 12.5% ₹ 8,343.75 ₹ 58,406.25
3 3rd ₹ 58,406.25 12.5% ₹ 7,300.78 ₹ 51,105.47
4 4th ₹ 51,105.47 12.5% ₹ 6,388.18 ₹ 44,717.29
Double Declining Balance Method
Formula :- 2 * Cost of Asset * Rate of Depreciation
Net Value
Residual Value
17. Sum of Years Digit Method
Q . Cost of Asset – 50,00,000
Salvage Value - 1,00,000
No. of Years - 04 years
Calculate amount depreciated till 4th year.
Solution :-
Sum of Years :- 4+3+2+1=10
Depreciation Factor Year Wise :- N/Sum of Year
18. ₹ 50,00,000.00
₹ 1,00,000.00
Sr Year
Book Value
(Beginning of Year)
Rate Of
Depreciation
Depreciation
(2)
Book Value
(Endof Year)
1 1st ₹ 49,00,000.00 ₹ 0.40 ₹ 19,60,000.00 ₹ 29,40,000.00
2 2nd ₹ 29,40,000.00 ₹ 0.30 ₹ 17,64,000.00 ₹ 11,76,000.00
3 3rd ₹ 11,76,000.00 ₹ 0.20 ₹ 4,70,400.00 ₹ 7,05,600.00
4 4th ₹ 7,05,600.00 ₹ 0.10 ₹ 1,41,120.00 ₹ 5,64,480.00
Asset Value
Residual Value
Sum of Year Digit Method
Depreciation Factor Year Wise :- N / Sum of Year