depreciation accounting ppt @ bec doms 2009
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Depreciation accounting ppt @ bec doms 2009TRANSCRIPT
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Depreciation Accounting
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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.”
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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
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Depreciation Accounting
Causes of Depreciation
Use/consumption
Efflux of time
Abnormal factors
Obsolescence
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Depreciation AccountingNeed 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
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Depreciation Accounting
Accounting for Depreciation (A)Methods of determining the amounts of depreciation.
(B) Accounting treatment
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Depreciation Accounting
(A) Methods of determining the amounts of depreciation
2 methods
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Depreciation Accounting
Fixed Instalment Method/Straight Line Method
CALCULATION OF DEPRECIATIONOriginal cost of asset – Estimated scrap value Life of the asset
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Depreciation Accounting
Original Cost of the Asset
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Depreciation Accounting
Original Cost includes - Payment to vendor- Transportation- Customs duty, in case of import of asset- Transit Insurance- Commission paid on purchase of asset- Installation charges- Initial repairs to second hand assets- Registration cost- Special costs incurred
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Depreciation Accounting
Estimated Scrap Value
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Depreciation Accounting
Life of the Asset
Factors Responsible
- Nature of the product- Quality of machine- Legal requirements- Use of machine- Maintenance of asset- Replacement policy
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Depreciation Accounting
Diminishing Balance Method/Written Down Value Method
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Depreciation Accounting
(B) Accounting treatment
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Depreciation Accounting
AS – 6 Depreciation Accounting
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Depreciation Accounting
APPLICABILITY
Forests, plantations and similar regenerative natural resources.Wasting Assets – Oil wells, Coal mines etc.Expenditure on research and development, whether successful or unsuccessful.GoodwillLivestockLand, unless it has a limited useful life for the organisation
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Depreciation Accounting
Change in the method of Depreciation
Statutory requirement arisesCompliance with the Accounting StandardIf the change would result in a more appropriate preparation or presentation of the financial statements
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Depreciation Accounting
Disclosure in Financial statements
Historical cost of each assetTotal depreciation for the periodThe method of depreciation being usedRate of depreciationUseful life of the asset
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Depreciation Accounting
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