Ppt on depriciation for class 11 students

1. DEPRECIATION

2. MEANING
Depreciation
A permanent fall in the value of fixed assets
arising through wear and tear from the use of
those assets in business.
Depreciation is allocated so as to charge a fair proportion of
the depreciable amount in each accounting period during the
expected useful life of the asset.

3. OBJECTIVES OF
DEPRECIATION

4. • To ascertain the correct profit and loss:
• To show the asset at its reasonable value
• To provide for replacement of an asset.
• Depreciation is permitted to be deducted
from profits for tax purposes.
• To ascertain the correct cost of
production:
• To show a true and fair view of the
financial position:

5. • Internal causes: wear and tear,
maintenance, change in production,
restriction of production, reduced
demand, technical progress & depletion.
• External causes: obsolescence
(Outdated) and efflux ion of time
Causes of Depreciation

6. METHODS OF
DEPRECIATION

7. STRAIGHT LINE METHOD
Straight line method depreciates cost evenly through out the
useful life of the fixed asset. Straight line depreciation is
calculated as follows:
(Cost - Residual Value) / Useful Life

8. ITS MERITS …
✔ It is a simple method of calculating the depreciation
✔ In this method ,assets can be depreciated up to the estimated scrap
value.
✔ In this method, it is easy to know the amount of depreciation.
✔ Every year the profit and loss account is debited by the same
amount of depreciation, so there is the same effect on profit and
loss account every year

9. ITS DEMERITS….
✔ With the passage of time, work efficiency of assets decreases
and repair expenses increases.
✔ Sometimes in this method, the book value of assets become nil,
still the asset are used in the business.

10. DIMINISHING BALANCE METHOD
Diminishing balance method is also known as written down value
method or reducing installment method. Under this method the
asset is depreciated at fixed percentage calculated on the debit
balance of the asset which is diminished year after year on account
of depreciation.

11. ITS MERITS…
✔ On the expansion and increase in assets the depreciation can be
computed easily by this method.
✔ This method is accepted under the income tax act.

12. ITS DEMERITS..
✔ In this method ,the value of assets can never be zero.
✔ It is difficult task to ascertain the proper rate of depreciation
✔ In this method also, there is no provision of interest on capital
invested in use of assets.