This document summarizes the key aspects of Accounting Standard AS-6 on depreciation accounting in India. It defines depreciation and explains how it is allocated over the useful life of a depreciable asset. It covers the applicability of AS-6, methods of calculating depreciation, factors affecting depreciation, and disclosure requirements regarding depreciation policies and amounts in financial statements. The document also discusses accounting treatments for changes in depreciation methods or estimates of useful life.

1. AS-6
DEPRECIATION
ACCOUNTING
Ranjith Kanduri

2. Introduction:
• The Accounting Standard deals with
depreciation accounting and applies to all
depreciable assets.
• Depreciation is allocated so as to charge a fair
proportion of depreciable amount in each
accounting period during expected useful life.
• This standard is inextricably connected with
another standard AS-10

3. Applicability of AS-6
AS-6 is applicable to all depreciable assets, except the
following:
✓ Forests, Plantation and other similar regenerative
natural resources
✓ Wasting Assets
✓ Expenditure on R & D
✓ Goodwill
✓ Live-stock
✓ Land – unless it has limited life

4. Meaning:
• Depreciation means decline in the value of
depreciable assets on account of use and
effluxion of time.
• Depreciation is a gradual, continuous &
permanent decrease in the value of an asset.
Timeline:
1984: Introduced
1994: Revised
1995: Applicable to Non-Corporates as well.

5. Definition:
• AS-6-Para3, Depreciation Accounting defines
depreciation as a measure of the wearing out,
consumption or other loss of value of a
depreciable asset arising from use, effluxion of
time or obsolescence through technology or
market changes.
• Depreciation includes amortization of assets
whose useful life is predetermined. Amortization
is a phrase used for Intangible assets.

6. Depreciable Assets
Depreciable Assets are those assets which:
✓are expected to be used for more than 1
accounting period.
✓Have a limited useful life.
✓Are held for the purpose of production of
goods & services and NOT for sale in the
ordinary course of business

7. 10
Depreciable
Amount
Historical Cost
or Other
Amount
substituted for
HC
Estimated
Residual
Value
Estimated
Useful Life
(Years )
Depreciable
Amount
Amount of
Depreciation
Usually following three factors help assess
Depreciation
How to Calculate Depreciation

8. Features & Causes
❑Features of Depreciation
❑Depreciation is a part of operating cost.
❑It is a reduction in the value of an asset.
❑The decrease in the value of an asset is gradual &
continuous.
❑ Causes of Depreciation
❑Physical wear & tear
❑Physical Deterioration
❑Expiry of legal rights
❑Obsolescence

9. Methods of Depreciation:
✓Fixed Installment Method
✓Reducing Balance Method
✓Sinking Fund Method
✓Insurance Policy Method
✓Sums of the digit Method
✓Revaluation Method
✓Depletion Method
✓Machine Hour Rate Method
✓Replacement Method

10. Changes in Depreciation Method
➢Method of depreciation once selected
consistently applied.
➢Change in method of Depreciation is done in the
following conditions:
➢For compliance of status
➢For compliance of AS’s
➢For more appropriate presentation of the
financial statement

11. Change in Accounting Policy
OR Change in Estimates
24
➢A Change in Method of Depreciation
is treated as a Change in …??
A change in accounting policy , and
changes in accounting policy is accounted
for retrospectively

12. How Change in Method is
accounted for ? Retrospectively.
There arises either a surplus or deficiency when such
recalculation is made.
In case of Surplus: Its credited to the Statement of profit and loss
In case of Deficiency: Its charged to the Statement of profit and lo
.
25
Depreciation is Re-calculated in accordance with the new
method

13. Changes in Estimated Useful Life
16
If it is considered that the original
estimate of useful life of an asset
requires any revision.
The unamortized depreciable amount of
the asset is charged to revenue over
the revised remaining useful life.
Thus , the effect is Prospective and
NOTRetrospective

14. Change in other factors
1. Change in Historical Cost
• Depreciation is calculated prospectively over Residual
useful life
1. Revision in Useful life
• Unamortised depreciation charged over REVISED
remaining useful life
1. Addition or extension in the asset
- 26

15. Depreciation on Addition/ Extension
• Any addition or extension becomes an integral
part of the existing asset. Hence it is
depreciated over the remaining useful life of
the asset.

17. Materiality
➢Depreciation fully allocated in same
accounting period when the asset does
not have a material value. !!!
➢This in other words , remaining net
17
bookvalue
Depreciation.
is fully charged as
The asset is
effectivelyde-recognised.

18. Disclosures
The related accumulated depreciation.
Total depreciation for the period of
each class of assets,
Historical cost or other amount substituted
for Historical cost of each class of
depreciable assets;

19. Additional disclosures
Following information should also be disclosed along
with disclosures of other accounting policies:
•Depreciation methods used, and
•Depreciation rates or useful lives of the assets
(if they are different from the principal rates specified in the
statute governing the enterprise e.g: Companies Act, 1956)