Principles of accounting BCAbca 207

1. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) Semester: Third Semester Name of the Subject: Principles of Accounting Basics of Accounting

2. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) Meaning of Accounts • Definition by the American Accounting Association (Year 1966): “The process of identifying, measuring and communicating economic information to permit informed judgments and decisions by the users of accounting”

3. Accounting – Classification • Financial Accounting • Cost Accounting • Management Accounting Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

4. Accounting Principles • These principles can be classified into two categories (i) Accounting concepts; and (ii) Accounting conventions. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

5. Accounting Concepts • Business Entity Concept • Money Measurement Concept • Cost Concept • Going Concern Concept • Dual Aspect Concept • Realisation Concept • Accrual Concept • Accounting Period Concept • Revenue Match Concept Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

6. Accounting Conventions • Consistency • Disclosure • Conservatism • Materiality Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

7. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) Semester: Third Semester Name of the Subject: Principles of Accounting Basics of Journals and its division

8. Journal - Meaning A journal is often referred to as Book of Prime Entry or the book of original entry. In this book transactions are recorded in their chronological order. The process of recording transaction in a journal is called as ‘Journalisation’. The entry made in this book is called a ‘journal entry’ Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

9. Functions of Journal • Analytical Function • Recording Function • Historical Function Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

10. Advantages of Journal • Chronological Record • Minimising the possibility of errors • Narration • Helps to finalise the accounts Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

11. GOLDEN RULES • Personal Accounts: ‘Debit the receiver and credit the giver’ • Real Accounts: ‘Debit what comes in and credit what goes out’ • Nominal Accounts: ‘Debit all expenses and losses and credit all incomes and gains’ from extent to include gains’ Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

12. Sub – Division of Journal • Cash Journal/Cash Book The sub types of cash book: - Single Column Cash Book - Two (Double) Column Cash Book - Three Column Cash Book • Petty Cash Book • Purchase Journal • Purchase Return Journal • Sales Journal • Sales Return Journal Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

13. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) Semester: Third Semester Name of the Subject: Principles of Accounting Final Accounts

14. Final Accounts - Meaning • Final Accounts or Financial Statements are the end products of the financial accounting process which involves the preparation of a summary of the accounts with a view to determine: • (i) net profit from the trading activities in terms of profit made or loss incurred for a given period, and • (ii) its financial position in terms of assets and liabilities as on the last date of the given period. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

15. Trading Account • Trading Account is the first part of income statement which is prepared to ascertain the gross profit or gross loss for a given accounting period. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

16. Profit and Loss Accounts • Profit and Loss Account is prepared to calculate the net profit or loss of the business for a given accounting period. The balance of Trading Account i.e. gross profit/gross loss is transferred to the Profit and Loss Account which is the starting point of the preparation of this account. • The following principles must be kept in mind while preparing Trading and Profit & Loss Account: – Only revenue receipts i.e. sale proceeds and other incomes should be entered. – Only revenue expenses together with losses should be taken into account. – Profit or loss is determined by matching revenues and expenses according to the matching principle. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

17. Balance Sheet • Balance sheet is a statement which shows the financial position i.e. the balances of assets, liabilities and capital, of a business entity at a given date. It is prepared from the real accounts and personal accounts of trial balance. A debit balance in a real account or personal account represents an asset of the concern/firm.Likewise a credit balance in a personal account represents a liability. • The totals of the two sides of the balance sheet must agree because of the equation, viz. Assets = Liabilities + Capital. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

18. Features of Balance Sheet • The primary objective of the preparation of balance sheet is to ascertain the financial position of a concern. • It shows (a) the nature and value of assets, (b) the nature and value of liabilities and (c) the position of capital. • Balance sheet is always prepared on a certain date, never for a particular period. • Balance sheet, unlike a trading and profit and loss account, is not an account. It is a statement containing information regarding assets, liabilities and capital. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

19. Balance Sheet and Adjustment entries • CLOSING STOCK • ACCRUED OR OUTSTANDING EXPENSES • UNEXPIRED OR PREPAID EXPENSES • ACCRUED OR OUTSTANDING INCOME • UNEARNED INCOME OR INCOME RECEIVED IN ADVANCE • DEPRECIATION • BAD DEBTS • PROVISION FOR BAD DEBTS • PROVISION FOR DISCOUNT ON DEBTORS • RESERVE FOR DISCOUNT ON CREDITORS • INTEREST ON CAPITAL • INTEREST ON DRAWINGS • ACCIDENTAL LOSS OF AN ASSET • MANAGER’S COMMISSION ON NET PROFITS • GOODS DISTRIBUTED AS FREE SAMPLES Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

20. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) Semester: Third Semester Name of the Subject: Principles of Accounting Inventory Management And Depreciation Accounting

21. Meaning of Inventory • Inventory is merchandise purchased by merchandisers (retailers, wholesalers, distributors) for the purpose of being sold to customers. The cost of the merchandise purchased but not yet sold is reported in the account Inventory or Merchandise Inventory. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

22. Objectives of Inventory Valuation • Determination of Trading Profit • Determination of Financial Position Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

23. Inventory systems • Each of the three cost flow assumptions listed above can be used in either of two systems (or methods) of inventory – Periodic inventory system – Perpetual inventory system Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

24. Methods of Valuation of Inventories • LIFO • FIFO • Weighted Average Method Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

25. Concept of Depreciation • Depreciation is a permanent, continuous and gradual shrinkage in the book value of a fixed asset. It is the fall in the quality or value of a fixed asset through physical wear and tear due to use or passage of time or from any other cause. Depreciation takes place irrespective of regular repairs and maintenance. Thus, depreciation is a process of allocating the cost of a fixed asset over its estimated useful life in a rational and systematic manner. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

26. Characteristics of Depreciation The following are the important characteristics of depreciation: (i) Depreciation refers to a permanent, continuous and gradual decrease in the utility value of a fixed asset and it continues till the end of the useful life of the asset. (ii) Depreciation is a charge against profit (i.e. revenue earned) for a particular accounting period. (iii) Depreciation is always computed in a systematic and rational manner since it is not a sudden loss. (iv) Depreciation is a process of allocation of expired cost and not of valuation of fixed assets. (v) Whatever method for calculating depreciation is followed, the exact amount of depreciation can never be calculated, and it can only be estimated. (vi) Depreciation is caused due to physical factors and functional factors. (vii) The fundamental objectives of depreciation are - (a) to maintain the nominal capital invested in fixed assets, and (b) to allocate the expired portion of the cost of fixed assets over a number of accounting periods. (viii) Depreciation is must, i.e. it always takes place whether the asset is carefully handled or neglected. (ix) If the market value of a fixed asset is fluctuating, the same does not affect the amount of depreciation so made on the respective assets. (x) Depreciation is calculated in respect of fixed assets only, i.e. plant, machinery, furniture etc. (xi) Total depreciation cannot exceed its depreciable value or original cost where the scrap value is nil. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

27. Causes of Depreciation • Physical Wear and Tear Resulting from Use • Physical Deterioration Resulting from Atmospheric Exposure • Passage of Time • Depletion • Obsolescence Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

28. Method of Recording Depreciation • WHEN THE DEPRECIATION IS DIRECTLY CHARGED TO ASSET ACCOUNT • WHEN PROVISION FOR DEPRECIATION ACCOUNT IS OPENED Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

29. Methods for Providing Depreciation • Fixed Instalment Method or Straight Line Method • Depreciation Fund (Sinking Fund) Method • Diminishing Balance Method (Reducing Balance Method) Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

30. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) THANK YOU

31. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) Semester: Third Semester Name of the Subject: Principles of Accounting Basics of Journals and its division

32. Journal - Meaning A journal is often referred to as Book of Prime Entry or the book of original entry. In this book transactions are recorded in their chronological order. The process of recording transaction in a journal is called as ‘Journalisation’. The entry made in this book is called a ‘journal entry’ Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

33. Functions of Journal • Analytical Function • Recording Function • Historical Function Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

34. Advantages of Journal • Chronological Record • Minimising the possibility of errors • Narration • Helps to finalise the accounts Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

35. GOLDEN RULES • Personal Accounts: ‘Debit the receiver and credit the giver’ • Real Accounts: ‘Debit what comes in and credit what goes out’ • Nominal Accounts: ‘Debit all expenses and losses and credit all incomes and gains’ from extent to include gains’ Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

36. Sub – Division of Journal • Cash Journal/Cash Book The sub types of cash book: - Single Column Cash Book - Two (Double) Column Cash Book - Three Column Cash Book • Petty Cash Book • Purchase Journal • Purchase Return Journal • Sales Journal • Sales Return Journal Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

38. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) Semester: Third Semester Name of the Subject: Principles of Accounting Final Accounts

39. Final Accounts - Meaning • Final Accounts or Financial Statements are the end products of the financial accounting process which involves the preparation of a summary of the accounts with a view to determine: • (i) net profit from the trading activities in terms of profit made or loss incurred for a given period, and • (ii) its financial position in terms of assets and liabilities as on the last date of the given period. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

40. Trading Account • Trading Account is the first part of income statement which is prepared to ascertain the gross profit or gross loss for a given accounting period. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

41. Profit and Loss Accounts • Profit and Loss Account is prepared to calculate the net profit or loss of the business for a given accounting period. The balance of Trading Account i.e. gross profit/gross loss is transferred to the Profit and Loss Account which is the starting point of the preparation of this account. • The following principles must be kept in mind while preparing Trading and Profit & Loss Account: – Only revenue receipts i.e. sale proceeds and other incomes should be entered. – Only revenue expenses together with losses should be taken into account. – Profit or loss is determined by matching revenues and expenses according to the matching principle. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

42. Balance Sheet • Balance sheet is a statement which shows the financial position i.e. the balances of assets, liabilities and capital, of a business entity at a given date. It is prepared from the real accounts and personal accounts of trial balance. A debit balance in a real account or personal account represents an asset of the concern/firm.Likewise a credit balance in a personal account represents a liability. • The totals of the two sides of the balance sheet must agree because of the equation, viz. Assets = Liabilities + Capital. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

43. Features of Balance Sheet • The primary objective of the preparation of balance sheet is to ascertain the financial position of a concern. • It shows (a) the nature and value of assets, (b) the nature and value of liabilities and (c) the position of capital. • Balance sheet is always prepared on a certain date, never for a particular period. • Balance sheet, unlike a trading and profit and loss account, is not an account. It is a statement containing information regarding assets, liabilities and capital. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

44. Balance Sheet and Adjustment entries • CLOSING STOCK • ACCRUED OR OUTSTANDING EXPENSES • UNEXPIRED OR PREPAID EXPENSES • ACCRUED OR OUTSTANDING INCOME • UNEARNED INCOME OR INCOME RECEIVED IN ADVANCE • DEPRECIATION • BAD DEBTS • PROVISION FOR BAD DEBTS • PROVISION FOR DISCOUNT ON DEBTORS • RESERVE FOR DISCOUNT ON CREDITORS • INTEREST ON CAPITAL • INTEREST ON DRAWINGS • ACCIDENTAL LOSS OF AN ASSET • MANAGER’S COMMISSION ON NET PROFITS • GOODS DISTRIBUTED AS FREE SAMPLES Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

46. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India) Semester: Third Semester Name of the Subject: Principles of Accounting Inventory Management And Depreciation Accounting

47. Meaning of Inventory • Inventory is merchandise purchased by merchandisers (retailers, wholesalers, distributors) for the purpose of being sold to customers. The cost of the merchandise purchased but not yet sold is reported in the account Inventory or Merchandise Inventory. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

48. Objectives of Inventory Valuation • Determination of Trading Profit • Determination of Financial Position Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

49. Inventory systems • Each of the three cost flow assumptions listed above can be used in either of two systems (or methods) of inventory – Periodic inventory system – Perpetual inventory system Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

50. Methods of Valuation of Inventories • LIFO • FIFO • Weighted Average Method Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

51. Concept of Depreciation • Depreciation is a permanent, continuous and gradual shrinkage in the book value of a fixed asset. It is the fall in the quality or value of a fixed asset through physical wear and tear due to use or passage of time or from any other cause. Depreciation takes place irrespective of regular repairs and maintenance. Thus, depreciation is a process of allocating the cost of a fixed asset over its estimated useful life in a rational and systematic manner. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

52. Characteristics of Depreciation The following are the important characteristics of depreciation: (i) Depreciation refers to a permanent, continuous and gradual decrease in the utility value of a fixed asset and it continues till the end of the useful life of the asset. (ii) Depreciation is a charge against profit (i.e. revenue earned) for a particular accounting period. (iii) Depreciation is always computed in a systematic and rational manner since it is not a sudden loss. (iv) Depreciation is a process of allocation of expired cost and not of valuation of fixed assets. (v) Whatever method for calculating depreciation is followed, the exact amount of depreciation can never be calculated, and it can only be estimated. (vi) Depreciation is caused due to physical factors and functional factors. (vii) The fundamental objectives of depreciation are - (a) to maintain the nominal capital invested in fixed assets, and (b) to allocate the expired portion of the cost of fixed assets over a number of accounting periods. (viii) Depreciation is must, i.e. it always takes place whether the asset is carefully handled or neglected. (ix) If the market value of a fixed asset is fluctuating, the same does not affect the amount of depreciation so made on the respective assets. (x) Depreciation is calculated in respect of fixed assets only, i.e. plant, machinery, furniture etc. (xi) Total depreciation cannot exceed its depreciable value or original cost where the scrap value is nil. Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

53. Causes of Depreciation • Physical Wear and Tear Resulting from Use • Physical Deterioration Resulting from Atmospheric Exposure • Passage of Time • Depletion • Obsolescence Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

54. Method of Recording Depreciation • WHEN THE DEPRECIATION IS DIRECTLY CHARGED TO ASSET ACCOUNT • WHEN PROVISION FOR DEPRECIATION ACCOUNT IS OPENED Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

55. Methods for Providing Depreciation • Fixed Instalment Method or Straight Line Method • Depreciation Fund (Sinking Fund) Method • Diminishing Balance Method (Reducing Balance Method) Chanderprabhu Jain College of Higher Studies & School of Law Plot No. OCF, Sector A-8, Narela, New Delhi – 110040 (Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)

Principles of accounting BCAbca 207

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Principles of accounting BCAbca 207