Module 1.5 Depreciation Accounting and AS

Depreciation Accounting -definition, reason, purpose, methods, Accounting Standard

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   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 Diminishing Balance Method/Written Down Value Method

10. Depreciation Accounting AS – 6 Depreciation Accounting

11. Applicability This Statement applies to all depreciable assets, except :— (i) forests, plantations ; (ii) wasting assets, Minerals and Natural Gas; (iii)expenditure on research and development; (iv) goodwill; (v) live stock – Cattle, Animal Husbandry. This statement also does not apply to land unless it has a limited useful life for the enterprise. Depreciation Accounting

12. Chance in Method of Depreciation A change from one method of providing depreciation to another should be made only if the adoption of the new method is required by statute or for compliance with an accounting standard or if it is considered that the change would result in a more appropriate preparation or presentation of the financial statements of the enterprise.

13. Chance in Method of Depreciation When such a change in the method of depreciation is made, depreciation should be recalculated in accordance with the new method from the date of the asset coming into use. The deficiency or surplus arising from retrospective recomputation of depreciation in accordance with the new method should be adjusted in the accounts in the year in which the method of depreciation is changed.

14. 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

15. Depreciation Accounting THANK YOU