ACCOUNTING OF DEPRECATION (AS PER AS-6)

REVISED1994

PRESENTED BY:

Swati motwani

Vashali vashishta

Suvasmita rout

INTRODUCTION OF DEPRECIATION ACCOUNTING

The term depreciation denotes decreases in the value of fixed asset but

in terms of accounting it is referred as a decrease in the book value of

asset. Depreciation is a permanent and continuous decrease in the book

value of fixed assets due to use, effluxion of time, obsolescence etc.

it is treated as a non-cash expenditure.

Different accounting policies are used for depreciation are adopted by

different organizations or enterprises. Disclosure of accounting policies for

depreciation followed by an enterprises is necessary to appreciate in the

financial statements of the enterprises.

It is applicable to all depreciable assets, except items having special

consideration like:

a) Goodwill, land, livestock;

b) expenditure on research and development;

c) forest, plantation and similar regenerative natural resources etc.

DEFINITION OF DEPRECIATION ACCOUNTING

ACCORDING TO B.G WICKERY:

“Depreciation may be defined as the permanent decrease in

the value of an asset through wear and tear in use or the

passage of time.”

It means depreciation denotes the permanent and continuing diminution

or decrease in the quality and quantity or value of asset due to wear and

tear , lapse of time, obsolescence, exhaustion or accident.

OBJECTIVE & IMORTANCE

OF PROVIDING DEPRECIATION

To ascertain the net profit

or loss properly

To show assets at correct

values in the balance

sheet

True and fair presentation of financial

position

Reliability of cost records

Provision for replacement of the asset

protection of capital

Avoiding over-

payment of tax

To comply with legal

requirements

Causes

of

DEPRECIATI-ON

Constant use of asset

Expiration of legal rights

obsolescence

depletion

accidents

Natural causes

Permanent fall in price

BASIC FACTOR OF DEPRECIATION

Cost of an asset

Original cost of an asset = cost price+ carriage freight +

installation exp. + custom Duty + any other exp. during

transit

Estimated useful life of asset

Estimated residual or scrap value of the asset

Installation charge

Dep. = (cost of mach. + installation charges)- scrap

value/estimated useful life of machinery

Change of obsolescence

Addition of assets

Capital expenditure

Adoption of statutory rules

METHODS OF DEPRECIATION

FIXED INSTALLATION METHOD

DIMINISHING BALANCE METHOD

ANNUITY METHOD

Depreciation amount of a depreciable asset is its historical cost less

the residual value - historical cost is the amount of a cash or its

equivalent paid to acquire an asset. It includes installation and

commissioning as well as for additions to or improvement there of.

cost of assets- cost of acquisitions+ freight+ repairs and overhauling

charges in case of secondhand asset+ installation charged.

Asset disposal account – when a part of the asset is sold or disposed

off, it is appropriate to open a new account called asset disposal

account. Method of according the entries in asset disposal account

will depend on the fact whether a provision for depreciation account is maintained or not

DEPRECIABLE ASSETS ARE THOSE ASSETS WHICH :(ACC. TO AS-6)

Are expected to be used during more than one accounting

period;

Have a limited useful life; and

Are held by an enterprises for use and not for the purpose of sale

in the ordinary course of business.

DISCLOSURE

The depreciation methods used, the total depreciation for the period

for each class of assets, the gross amount of each class of depreciable

assets and the related accumulated depreciation are disclosed in the

financial statements along with the disclosure of there accountingpolicies. The depreciation rates or the useful lives of the assets are

disclosed only if they are different from the principal rates specified in

the statute governing the enterprise.

THANK YOU!!!