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DEPRECIATION ACCOUNTING

DEPRECIATION ACCOUNTING. Depreciation : meaning Objective Depreciable assets : meaning Methods of providing the depreciation Changes in the method of depreciation Depreciation in context of NGOs Creating capital funds Disclosure in the books of accounts Conclusion. CONTENTS.

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DEPRECIATION ACCOUNTING

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  1. DEPRECIATION ACCOUNTING

  2. Depreciation : meaning • Objective • Depreciable assets : meaning • Methods of providing the depreciation • Changes in the method of depreciation • Depreciation in context of NGOs • Creating capital funds • Disclosure in the books of accounts • Conclusion CONTENTS

  3. It is the measure of • Wear out • Consumption & • Loss of value of the fixed assets • Allocation is done by charging • The fair proportion of depreciable amount • For the accounting period DEPRECIATION: MEANING

  4. Fixed assets viz. Building , furniture are subjected to depreciation . • Depreciation needs to be provided to • Ensure allocation of original cost of fixed asset • Ascertain true cost of operation • Provide current valuation of fixed asset in the balance sheet OBJECTIVE

  5. It includes those assets which are: • Expected to be used during more than a accounting period • With limited useful life • Held for use in production or supply of the goods & services DEPRECIABLE ASSETS

  6. It is the amount of asset at its • Historical cost or • Amount substituted for historical cost • Less the estimated residual value • It can be calculated as below: Historical cost Less: residual value DEPRECIABLE AMOUNT

  7. The factors determining the quantum of depreciation are: • Historical cost • Expected useful life • Estimated residual value FACTORS DETERMINING DEPRECIATION

  8. It represents • The money outlay • It is equivalent to the amount in connection with • Cost of acquisition • Cost of installation • Cost of commissioning • Cost of improvement there of HISTORICAL COST

  9. Useful life of an asset is period over which • A depreciable asset is expected to be used • The no. of productions & similar units expected to be obtained • Physical wear & tear is expected • Legal or other limits on the use of an asset is specified USEFUL LIFE OF ASSET

  10. Depreciation can be charged on the assets through • Straight line method ( SLM) • Written down value (WDV) • The selection of method depends upon: • Type of asset • Nature of asset • Circumstances in the organisation METHODS OF CHARGING DEPRECIATION

  11. The amount of depreciation remains the same throughout the year • SLM is charged on the original cost of the assets • It is calculated as : Historical cost – realization value Life of the fixed asset STRAIGHT LINE METHOD

  12. In this method • Rate is applicable on the net value of the asset • Net value is calculated by subtracting • The depreciation from the historical cost of asset • Depreciation can be calculated as Net value of asset * rate of depreciation WRITTEN DOWN VALUE

  13. A change can only be made if • Required by the statue • Compliance with the accounting standard • Change results in more appropriate preparation of financial statements • After change in method depreciation is • Recalculated with the new method • From the date of the asset coming into use DEPRECIATION: CHANGE IN METHOD

  14. Following information are to be disclosed in the financial statements: • The historical cost of an depreciable asset • Total depreciation for the period for each class of asset • Method of depreciation used • Rate of depreciation & useful life of the assets • Surplus/ deficiency on the disposal of an asset DISCLOSURE

  15. There is no any rule for charging depreciation in NGOs • Some NGOs charge depreciation while some do not • There is not any rate of depreciation prescribed for the NGOs • More information on Accountable 104, 105 DEPRECIATION IN NGOS

  16. FURTHER READING AccountAble 104: Depreciation Accounting -1AccountAble 104: Depreciation Accounting -2

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