Provisions The books of accounts of an organisation are generally based on accrual basis of accounting, which is also known as the mercantile system of bookkeeping. The accrual concept of accountancy specifies that all expenses and losses relating to the current year should be booked in this year itself and similarly all incomes and profits … Read more
Effect of any Addition or Extension to Existing Asset Sometimes an existing asset does not function to its full capacity because it requires some additional asset to deliver the best results. Such additions or extensions are made for rendering the existing assets suitable for the business operations. These modifications either become an integral part of … Read more
Disposal of Asset Due to reasons like obsolescence or inefficiency or any other abnormal factor, a business organisation may dispose off an asset. The disposal of asset can be done either – (a) at the end of the useful life of the asset ,i.e., after utilising the asset fully or (b) during its useful life, … Read more
Methods of Recording Depreciation For recording depreciation on fixed assets there are two types of arrangements: Charging depreciation to the asset account or, Creating Provision for the depreciation/Accumulated depreciation account. (A) Charging depreciation to asset account: As per this arrangement, depreciation is directly deducted from the depreciable cost of the asset, i.e., book value of … Read more
Comparative Analysis – The two methods generally used to calculate depreciation are Straight Line method and Written Down Value method. An organisation can use either of the two depending on its policies and the prevalent law. The following points are noteworthy for a comparative analysis between the two methods. 1. Basis of Charging Depreciation: Depreciation … Read more
Methods of calculating depreciation amount There are two methods of calculating depreciation amount which are mandated by the law and implemented by professional accounting practice in India. These methods are known as the Straight line method and the Written down value method. Apart from these two main methods there are also other methods such as … Read more
Factors Affecting the Amount of Depreciation: The calculation of the amount of depreciation for an accounting period is influenced by the: Actual cost of the asset Estimated residual or scrap value of the asset. Depreciable cost Estimated useful life of the asset Out of these elements, two elements depend on just estimation and just one … Read more
Every organisation carrying on a business, profession or any other operation faces the need to charge depreciation on its fixed asset to present a true and clear picture of the financial position of the concern. To ascertain the actual capacity of assets at the end of each financial year, it becomes mandatory to state them … Read more
Depreciation refers to the continuous decline in the book value of fixed assets. It does not occur because of any one specific reason but it is a combination of various factors that work together which eventually lead to depreciation. Depreciation occurs due to normal wear and tear, regular consumption, passage of time or obsolescence of … Read more
Depreciation Depreciation refers to the decline in the book value of fixed assets due to gradual wear and tear, consumption, effluxion of time or obsolescence due to technology or market related factors. Depreciation is charged every year so that the burden of the decline in the value of assets do not fall in any one … Read more
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