G1 4 Accounting For Depreciation (D01-J14)

Depreciation
Methods of Depreciation & Methods of

Accounting of Depreciation
Comprehensive idea about depreciation including reasons for depreciation, thirteen methods
of depreciation, three methods of accounting of depreciation and accounting standard 6
T K Sridhar [Singar Academy]
l.4 ACCOUNTING FOR DEPRECIATION
[CMA FOUNDATION D01, 4 Marks]

Question 1: Write short notes on Depreciation.
Answer: Depreciation is a loss in value of an Asset. It is measure of wearing out, consumption, or other
loss in value of Depreciable Asset arising from use and passage of time. As per IAS4 - Depreciation is the
allocation of the depreciable amount of an asset over its estimated useful life.
Depreciation Accounting: Depreciation Accounting is the process of allocation and not valuation.
[CMA INTER SY08, D12, 3 Marks]

Question 2: State the criteria which should be fulfilled by a depreciable asset as per AS6
Answer: Depreciable Assets are assets which are:
used during more than one year
having a limited useful life
held by an enterprise for use in :
o
the production or supply of goods and services
for renting to others
for administrative purposes
not for the purpose of sale in the ordinary course of business.
Question 3: What is depreciable amount?

Answer: Depreciable amount = historical cost scarp value
Depreciable amount of a depreciable asset should be allocated on a systematic basis to each accounting
period during its useful life.
[CMA INTER J09, 5 Marks]

Question 4: What are the objectives of charging depreciation and problems of measurement of
depreciation? Explain.
Answer: Prime objectives for providing Depreciation are:
1.
Correct income measurement: Depreciation should be charged for proper estimation of periodic
profit or loss.
2.
True position statement: Value of the fixed assets should be adjusted for depreciation charged in
order to depict the actual financial position.
Financial Accounting
4.1
3.
Funds for replacement: Generation of adequate funds in the hands of the business for replacement of
the asset at the end of its useful life.
4.
Ascertainment of true cost of production: For ascertaining the cost of the production, it is necessary
to charge depreciation as on item of cost of production.
Question 5: What is the nature of depreciation?

1.
Depreciation is non-cash operating expense which is to be provided whether there are profits or
losses.
2.
Depreciation is concerned with historical cost and not with the fluctuations in market price.
Question 6: What are the Causes of Depreciation?

1.
Physical wear and tear. [permanent and continuous decrease in the book value of fixed assets due to
use]
2.
Effluxion of time [Passage of time]
3.
Obsolescence [out-dated] [the economic deterioration by change in technology or taste or fashion]
4.
Depletion [physical deterioration of natural resources like ore deposits in mines, oil wells]
5.
Changes in economic environment
6.
Expiration of legal rights.
Question 7: What is amortization and dilapidation?

Answer: Amortization refers to the economic deterioration of intangible assets like goodwill, patent
obsolescence.
Dilapidation - In one sentence Dilapidation means a state of deterioration due to old age or long use.
This term refers to damage done to a building or other property during tenancy.
Question 8: What are the factors affecting Amount of Depreciation

1.
Historical Cost
2.
Expected Useful life
3.
Estimated Residual Value.
Note: All expenses incurred till the asset is put to use are treated as capital nature and hence form part of
historical cost.
Problems of measurement of depreciation are:
1.
Estimated useful life may be incorrect and misleading.
2.
Certain uncertain factors affect predetermined quantum of depreciation.
Accounting for Depreciation
4.2
Question 9: What are the methods of recording depreciation?

Answer:
Two Methods of Recording Depreciation
By Charging to Asset A/c
By Creating Provision for Depreciation A/c
Depreciation is credited to Asset A/c
Depreciation
is
credited
to
Provision
for
Depreciation A/c
2
Asset appears at its Written down Value
Asset appears at its Original Cost.
(i.e. Cost less depreciation till date)
Question 10: Most Commonly Employed 2 Methods of Providing Depreciation

1.
Straight Line Method (SLM)
2.
Written Down Value (WDV) Method
Question 11: Write short note disclosure requirements as per AS6

Answer:
The historical cost of each class of assets;
Total depreciation for the period.
The related accumulated depreciation;
Depreciation methods used; and
Depreciation rates (if they are different from the principal rates specified in the statute governing the
enterprise.)
Question 12: Distinction between Straight Line Method and Written Down Value Method
Straight Line Method differs from Written Down Value Method in the following respects:
Basis of
Straight Line Method
Written Down Value Method
Depreciation is calculated at a fixed
Depreciations is calculated at a fixed
percentage on the original cost.
percentage on original cost (in first year)
Distinction
1.
Basis
of
Calculation
and on written down value (in subsequent

years).
2.
Amount
of
Depreciation
The
amount
remains constant
of
depreciation
The amount of depreciation goes on

decreasing.
4.3
3.
Total
Charge
Total charge in later years is more
Total charge remains almost uniform year
(i.e.
as compared to that in earlier years
after year, since in earlier years the amount
Depreciation
since renewals goes on increasing
of depreciation is more and the amount of
plus repairs)
as the asset grows older, whereas
repairs and renewals is less whereas in
the amount of depreciation remains
latter years, the amount of depreciation is
constant year after year.
less and the amount of repairs & renewals is

more.
4.
Book Value
The
book
value
of
the
asset
becomes zero or equal to its scrap
The book value of the asset does not

become zero.
value.
5.
Suitability
This method is suitable for those
This method is suitable for those assets in
assets in relation (a) repair charges
relation to which (a) the amount of repairs
are less (b) the possibility of
& renewals goes on increasing as the asset
obsolescence is less
grows older and (b) the possibility of

obsolescence are more.
6.
Calculation
Easy or difficult
It is easy to calculate the rate of
It is difficult to calculate the rate of
depreciation
depreciation.
Question 13: How to calculate amount and rate of depreciation under various methods?
Method of
Calculation of Amount of Depreciation (D)
Depreciation
and Rate of Depreciation (r)

Time Base
Straight Line Method

(SLM)
or
Fixed
Installment Method
2
Written Down Value
Depreciation =
Rate of Depreciation =
100
Rate of Depreciation =1
(WDV)
Where, n = Useful life of the asset (in years)
Amount of Depreciation = Book Value of the Asset rate of
Depreciation
3
Double
Declining
Depreciate two times when the assets are used for extra shift (or)
Method (or)
Accelerated rate of depreciation = Rate of depreciation in SLM
Accelerated
Accelerate %
Depreciation
Note: Accelerated may be 150%, 200% etc., depending upon the

additional use of the asset
4.4
Sum of Years Digits
Rate of Depreciation
for 1st year =
for 2nd year =
for 3rd year =
.
.
for nth year =
Where
Sum of Years Digits =
n refers to useful life of the asset (in years).
Amount of Depreciation = (Original Cost Less Estimated Scrap
Value) Respective Rate of Depreciation for the given year.
Source of Fund Base
Sinking Fund Factor
*where, i is the rate of interest & n is the life in years]
[SFF]
Annuity Factor [AF]
Present Value Factor
*where, i is the rate of interest & n is the life in years]

*where, i is the rate of interest & n is the life in years+
[PVF]
5
Sinking
Fund
or
Depreciation = Amount required for replacement of the asset SFF
Depreciation Fund
6
Annuity
Depreciation = (Original Cost PVF Scrap Value) Annuity Factor

Note: Under Annuity Method, interest is provided each year on the
balance of asset and fixed amount of depreciation is charged each year.
Suitable for financial lease.
Insurance Policy
Depreciation = Insurance Premium p.a.

Use Base
Depletion
Rate of depreciation per unit =

Depreciation = Actual Output (in units) Depreciation p.u.
Machine Hour
Depreciation per machine hour=

Depreciation= Actual Hours Rate of Depreciation per Hour
4.5
10
Production Units
Depreciation per unit =

Depreciation = Actual Production Units Depreciation p.u.
11
Kilo meter
Depreciation per unit =

Depreciation = Actual kilo meter Depreciation p.k.m.
Price Base

Question: Write short notes on revaluation method of depreciations.
12
Revaluation Method
Depreciation = Opening Value + Purchases Closing Value

Note: Suitable for loose tools
13
Provision for Repairs
Depreciation =
& Renewals
Question 14: When can a Change in Method of Depreciation be made?

Answer: If adoption of new method is required
1.
By Statue.
2.
To comply with accounting standard.
3.
To have more appropriate preparation & presentation of financial statements of enterprise
Question 15: Write a note on accounting for the retrospective effect in case of change in method of
depreciation.
Answer: Depreciation should be recalculated as per new method from the date of asset coming into use.
Treatment of Deficiency: The deficiency should be debited to Statement of Profit & Loss
Treatment of Surplus: The surplus should be credited to Statement of Profit & Loss.

Question 16: Distinguish between depreciation and reserve.
Answer: Depreciation is the process of allocating the cost of a Fixed Asset over its estimated useful life in
a rational and systematic manner, whereas Reserve is an appropriation of profit. Due to depreciation, net
profit is reduced but Reserve does not affect the net profit. Reserves are created to strengthen financial
position and to meet unforeseen losses, whereas depreciation is provided to ascertain the correct profit
and correct book value of fixed asset. Reserves are the undistributed profits and belong to the owners
equity. Depreciation is a rational estimate of a decline in the usefulness of an Asset due to consumption,
use, passage of time, technological changes etc.
4.6
True or false
1.
The useful life of a depreciable asset is the period over which the asset is expected to be used by the
enterprise, which is generally greater than the physical life.1 [CMA INTER SY08, D13, 1 Mark]
2.
Sinking fund method of depreciation takes into account the cost of an asset as well as interest also
thereon at given rate.2 [CMA INTER SY08, J13, 1 Mark]
3.
One of the objectives achieved by providing depreciation is saving cash resources for future
replacement of assets.3 [CMA INTER SY08, J12, 1 Mark]
4.
There exists difference between the Written Down Value method and Diminishing Balance Method of
depreciation.4 [CA-CPT N96 & Similar N00, 2 Marks]
5.
The expressions depreciation is to be charged at 10% and 10% p.a. on furniture and fittings carry the
same meaning.5 [CA-CPT M97, 2 Marks]
6.
Higher depreciation will not affect cash profit of the business. 6 [CA-CPT M99 & Similar N02, 2
Marks]
7.
Land is also depreciable assets.7 [CA-CPT M01, 2 Marks]
8.
Depreciation is a process of allocation of the cost of fixed asset. 8 [CA-CPT N03, 2 Marks]
Fill in the blanks

1.
One of the characteristics of depreciation is that it is a _________ against profit [charge,

appropriation]9 [CMA INTER SY08, D13, 1 Mark]
PRACTICAL PROBLEMS
Calculation of Amount of Depreciation under SLM, WDV, DDM and SDY

Question 1: Calculate amount of depreciation under Straight Line Method, Written Down Value Method,
Sum of the Years Digits Method and Double Decline Method
Original Value of the Asset 65,000
False useful life is always shorter than physical life
False sinking fund considers interest for the reinvestment not as a charge but in annuity method of
depreciation, interest on investment in assets is considered as a charge.
3 True the amount of depreciation is accumulated in a separate fund called sinking fund.
4 False Both are the same methods. Depreciation is computed by applying a fixed rate on the diminish
balance which is known as written down value.
5 False They differ on the basis of time factor. 10% p.a. implies that time factor is to be considered while
calculating depreciation. Whereas simply 10% implies that time factor is immaterial for calculation.
6 True it is a non-cash expenses
7 False Land is not a depreciable asset except if the useful life of the land is given.
8 True
9 Charge
1
2
4.7
Scrap Value of the Asset 5,000

Life 3 years
Answer: Calculation of rate of depreciation under different methods
SLM
WDV
DDM
SDM
Yr
1-
Depreciation
Formula
rate of SLM 2
1-
% = 30.77%
%=57.47%
30.772 = 61.54%
Where: Sum of Years Digits =
Year
Particulars
SLM
WDV
DDM
SDM
Original Value
65,000
65,000
65,000
65,000
Depreciation
20,000
37,356
40,000
30,000
Written Down Value
45,000
27,644
25,000
35,000
Depreciation
20,000
15,887
15,385
20,000
Written Down Value
25,000
11,757
9,615
15,000
Depreciation
20,000
6,757
4,6151
10,000
Scrap Value
5,000
5,000
5,000
5,000
Journal Entries
SLM
Debit
Assets A/c
Dr
Credit
65,000
WDV
Debit
Credit
65,000
DDM
Debit
Credit
65,000
SYD
Debit
Credit
65,000
0
To Cash A/c
Depreciation A/c
1
Dr
20,000
To Assets
Profit and Loss A/c
65,000
65,000
37,356
20,000
Dr
20,000
65,000
40,000
37,356
37,356
65,000
30,000
40,000
40,000
30,000
30,000
Last year, depreciation is the balancing charge to make it equal to scrap value
4.8
To Depreciation
20,000
Depreciation A/c
Dr
20,000
To Assets
37,356
15,887
20,000
40,000
15,385
15,887
30,000
20,000
15,385
20,000
2
Profit and Loss A/c
Dr
20,000
To Depreciation
15,887
20,000
Depreciation A/c
Dr
20,000
To Assets
15,887
6,757
20,000
Profit and Loss A/c
Dr
15,385
20,000
20,000
15,385
4,615
6,757
6,757
20,000
10,000
4,615
4,615
10,000
10,000
3
To Depreciation
Cash A/c
20,000
Dr
5,000
To Assets A/c
6,757
5,000
5,000
4,615
5,000
5,000
10,000
5,000
5,000
5,000
Calculation of Amount of Depreciation under depletion method

Question 2: Pensive Corporations subsidiary Pensive Oil drills a well with the intention of extracting oil
from a known reservoir. It incurs the following costs related to the acquisition of property and
development of the site:
Land purchase
2,80,000
Road construction
23,000
Drill pad construction
48,000
Drilling fees
1,92,000
Total
5,43,000
In addition, Pensive Oil estimates that it will incur a site restoration cost of 57,000 once extraction is
complete, so the total depletion base of the property is 600,000.
Pensives geologists estimate that the proven oil reserves that are accessed by the well are 400,000 barrels.
Pensive Oil extracts 100,000 barrels and 3,00,000 barrels in the first and second year
Answer: Rate of depreciation per unit =
Year
0
Particulars
Original Value with provision for site restoration cost
= 1.50
6,00,000
4.9
1,00,000 barrels 1,50
Depreciation
Written Down Value
Depreciation
Written Down Value
1,50,000
4,50,000
3,00,000 barrels 1,50
4,50,000
0
Journal Entries
Debit
Assets A/c
Dr
Credit
5,43,000
0
To Cash A/c
5,43,000
Depreciation A/c
Dr
1,50,000
To Assets
1,50,000
1
Profit and Loss A/c
Dr
1,50,000
To Depreciation
1,50,000
Depreciation A/c
Dr
4,50,000
To Assets
4,50,000
Profit and Loss A/c

2
Dr
4,50,000
To Depreciation
4,50,000
Asset A/c
Dr
57,000
To Cash
57,000
(Asset restoration cost)
Question 3: On 01.04.2012, machine purchased at 5,00,000 with a scrap value of 1,00,000 has life of
running 2,00,000 machine hours or producing 1,00,000 units
Year
Machine Hours
Production Units
2012-13
50,000
25,000
2013-14
1,00,000
50,000
2014-15
50,000
25,000
Calculate amount of depreciation under machine hour rate and production unit rate
Answer:
Method
1
Machine Hour Rate
Formula
Calculation
2
4.10
Production Unit Rate
Year
Particulars
Machine Hour
Original Value
Depreciation
Written Down Value
Depreciation
Written Down Value
Depreciation
Scrap Value
Production Unit
5,00,000
50,0002
1,00,000
5,00,000
25,0004
4,00,000
1,00,0002
2,00,000
4,00,000
50,0004
2,00,000
50,0002
1,00,000
1,00,000
2,00,000
2,00,000
25,0004
1,00,000
1,00,000
1,00,000
Question 4: On 01.04.2012, lorry purchased at 25,00,000 with a scrap value of 5,00,000 has life of
running 2,00,000 kilo meters
Year
Kilo meters
2012-13
80,000
2013-14
80,000
2014-15
40,000
Calculate amount of depreciation under kilo meter travelled method

Answer:
Method
Formula
Calculation
10
Depreciation per kilo meter
Year
Particulars
Original Value
Depreciation
Written Down Value
Depreciation
Written Down Value
Depreciation
Scrap Value
Machine Hour
25,00,000
80,00010
8,00,000
17,00,000
80,00010
8,00,000
9,00,000
40,00010
4,00,000
5,00,000
4.11
Question 5: On 01.01.10, An asset is purchased for 1,00,000 has a residual value of 20,000 at the end of
3rd year. Expected cost for repairs and renewal during the life is 70,000. Actual repair costs are 20,000,
25,000 and 30,000 in the years I, II and III respectively. At end of third year, the asset is sold for 15,000.
Answer: Depreciation under Provision for Repairs & Renewals
Formula
Calculation
Depreciation
50,000
Journal Entries
0
Assets A/c
Debit
Dr
1,00,000
To Cash A/c
1
Depreciation A/c
1,00,000
Dr
50,000
To Provision for repairs A/c

Profit and Loss A/c
50,000
Dr
50,000
To Depreciation
Repairs A/c
50,000
Dr
20,000
To Cash A/c
Provision for repairs A/c
20,000
Dr
20,000
To Repairs A/c
2
Depreciation A/c
20,000
Dr
50,000

Profit and Loss A/c
50,000
Dr
50,000
To Depreciation
Repairs A/c
50,000
Dr
25,000
To Cash A/c
25,000
Dr
25,000
To Repairs A/c
3
Depreciation A/c
25,000
Dr
50,000

Profit and Loss A/c
50,000
Dr
50,000
To Depreciation
Repairs A/c
Credit
50,000
Dr
30,000
4.12
To Cash A/c
30,000
Dr
30,000
To Repairs A/c
30,000
Cash A/c
Dr
15,000
Provisions for repairs A/c
Dr
75,000
Loss on sale A/c
Dr
20,000
To Assets
1,00,000
Dr.
Assets A/c
Date
01.01.10
To
Cr.
Particular
Amount
Date
Bank Purchase
1,00,000
31.12.10
By
Particular
Amount
Balance c/d
1,00,000
1,00,000
01.01.11
Balance b/d
1,00,000
1,00,000
31.12.11
Balance c/d
1,00,000
01.01.12
Balance b/d
1,00,000
1,00,000
31.12.12
Cash A/c
15,000
Provision A/c
75,000
Loss on Sale
10,000
1,00,000
Dr.
31.12.10
1,00,000
Provision for repairs, renewal and depreciation A/c
Date
Particular
To
Amount
Repairs A/c
20,000
Balance c/d
30,000
1,00,000
Date
31.12.10
Particular
By
Profit and Loss A/c
50,000
Cr.
Amount
50,000
50,000
01.01.11
Repairs A/c
25,000
01.01.11
Balance b/d
30,000
31.12.11
Balance c/d
55,000
01.10.11
Profit and Loss A/c
50,000
80,000
31.12.12
Repairs A/c
30,000
01.01.12
Balance b/d
55,000
Asset A/c
75,000
01.10.12
Profit and Loss A/c
50,000
1,05,000
80,000
1,05,000
4.13
Question 6: The value of loose tools available on 01.04.2013 is 1,00,000. Loose tools are purchased
during 2013-14 are 50,000. The value of loose tools as per revaluation on 31.03.2014 is 75,000. Find out
the depreciation under revaluation method.
Answer:
Depreciation
Opening Value + Purchases Closing Value
Depreciation
1,00,000 + 50,000 75,000
Journal Entries
Loose Tools A/c
75,000
Debit
Dr
Credit
50,000
0
To Cash A/c
Depreciation A/c
50,000
Dr
75,000
To Loose Tools
75,000
1
Profit and Loss A/c
Dr
75,000
To Depreciation
75,000
Question 7: Asset purchased for 1,00,000, 50,000 and 2,00,000 on 1.1.2010, on 1.10.2011 and on 1.1.2012
respectively. On 1.10.2011, the asset purchased on 1.1.2010 was sold for 70,000. The rate of depreciation
of the above assets is 10% under straight line method. Prepare assets a/c under different methods of
accounting for the treatment of depreciation.
Answer: Method I [Charging depreciation to asset a/c]
Journal Entries
SLM
Date
Debit
Assets A/c
Dr
Credit
1,00,000
01.01.10
To Cash A/c
Depreciation A/c
1,00,000
Dr
10,000
To Assets
10,000
31.01.10
Profit and Loss A/c
Dr
10,000
To Depreciation
Assets A/c
10,000
Dr
50,000
01.07.11
To Cash A/c
01.10.11
Cash A/c
50,000
Dr
70,000
4.14
Loss on Sale A/c
Dr
12,500
Depreciation A/c
Dr
7,500
To Assets A/c
90,000
Depreciation A/c
Dr
1,250
To Assets
1,250
31.12.11
Profit and Loss A/c
Dr
8,750
To Depreciation
Assets A/c
8,750
Dr
2,00,000
01.01.12
To Cash A/c
2,00,000
Depreciation A/c
Dr
25,000
To Assets
25,000
3
Profit and Loss A/c
Dr
25,000
To Depreciation
Dr.
Assets A/c
Date
01.01.10
25,000
To
Particular
Amount
Date
Bank Purchase
1,00,000
31.12.10
Cr.
Particular
By
Depreciation
Amount
10,000
(1,00,000 10/100)
Balance c/d
1,00,000
01.01.11
Balance b/d
90,000
01.07.11
Bank Purchase
50,000
90,000
1,00,000
01.10.11
Depreciation
7,500
(1,00,000 10/1009/12)
31.12.11
P/L A/c [Loss]
12,500
Cash
70,000
Depreciation
1,250
(50,00010/1003/12)
Balance c/d
1,40,000
01.01.12
Balance b/d
Bank- Purchase
48,750
2,00,000
48,750
1,40,000
31.12.12
Depreciation
25,000
(2,50,00010/100)
4.15
Balance c/d
2,23,750
2,48,750
01.01.13
2,48,750
2,23,750
Method II [Provision for depreciation method]
Journal Entries
SLM
Date
Debit
Assets A/c
Dr
Credit
1,00,000
01.01.10
To Cash A/c
Depreciation A/c
1,00,000
Dr
10,000
To Provision for Depreciation A/c
10,000
31.01.10
Profit and Loss A/c
Dr
10,000
To Depreciation
Assets A/c
10,000
Dr
50,000
01.07.11
To Cash A/c
Depreciation A/c
50,000
Dr
7,500
7,500
Cash A/c
Dr
70,000
Loss on Sale A/c
Dr
12,500
Provision for Depreciation A/c
Dr
17,500
01.10.11
To Assets A/c
Depreciation A/c
1,00,000
Dr
1,250
1,250
31.12.11
Profit and Loss A/c
Dr
8,750
To Depreciation
Assets A/c
8,750
Dr
2,00,000
01.01.12
To Cash A/c
Depreciation A/c
2,00,000
Dr
25,000
31.12.12
25,000
4.16
Profit and Loss A/c
Dr
25,000
To Depreciation
Dr.
25,000
Assets A/c
Date
01.01.10
To
Particular
Amount
Date
Bank Purchase
1,00,000
31.12.10
Cr.
Particular
By
Amount
Balance c/d
1,00,000
1,00,000
01.01.11
Balance b/d
01.10.11
Bank Purchase
1,00,000
1,00,000
01.10.11
50,000
31.12.11
Provision for depreciation
17,500
P/L A/c [Loss]
12,500
Cash
70,000
Balance c/d
50,000
1,50,000
01.01.12
Balance b/d
Bank- Purchase
50,000
1,50,000
31.12.12
Balance c/d
2,00,000
2,50,000
01.01.13
2,50,000
2,50,000
Dr.
Date
31.12.10
2,50,000
To
Particular
Amount
Balance c/d
10,000
Date
31.12.10
Cr.
Particular
By
Depreciation
Amount
10,000
(1,00,000 10/100)
10,000
10,000
01.01.11
Assets A/c
17,500
01.01.11
Balance b/d
10,000
31.12.11
Balance b/d
1,250
01.10.11
Depreciation
7,500
(1,00,000 10/1009/12)
31.12.11
Depreciation
1,250
(50,000 10/1003/12)
18,750
31.12.12
Balance c/d
26,250
18,750
01.01.12
Balance b/d
1,250
01.10.12
Depreciation
25,000
4.17
(2,50,000 10/100)
26,250
26,250
01.01.13
Balance b/d
26,250
Method III [Provision for depreciation method and disposal of assets a/c]
SLM
Journal Entries
Date
Debit
Assets A/c
Dr
Credit
1,00,000
01.01.10
To Cash A/c
Depreciation A/c
1,00,000
Dr
10,000
10,000
31.01.10
Profit and Loss A/c
Dr
10,000
To Depreciation
Assets A/c
10,000
Dr
50,000
01.07.11
To Cash A/c
Depreciation A/c
50,000
Dr
7,500

Asset Disposal A/c
7,500
Dr
1,00,000
To Asset A/c
1,00,000
01.10.11
Cash A/c
Dr
70,000
Loss on Sale A/c
Dr
12,500
Dr
17,500
To Assets Disposal A/c

Depreciation A/c
1,00,000
Dr
1,250
1,250
31.12.11
Profit and Loss A/c
Dr
8,750
To Depreciation
Assets A/c
8,750
Dr
2,00,000
01.01.12
To Cash A/c
2,00,000
4.18
Depreciation A/c
Dr
25,000
25,000
31.12.12
Profit and Loss A/c
Dr
25,000
To Depreciation
Dr.
Assets A/c
Date
01.01.10
25,000
To
Particular
Amount
Date
Bank Purchase
1,00,000
31.12.10
Cr.
Particular
By
Balance c/d
1,00,000
01.01.11
Balance b/d
01.10.11
Bank Purchase
Balance b/d
1,00,000
01.10.11
Assets Disposal A/c
50,000
31.12.11
Balance c/d
50,000
Bank- Purchase
50,000
31.12.12
Balance c/d
2,50,000
2,00,000
2,50,000
2,50,000
Dr.
Date
31.12.10
1,00,000
1,50,000
2,50,000
01.01.13
1,00,000
1,00,000
1,50,000
01.01.12
Amount
Particular
To
Balance c/d
Amount
10,000
Date
31.12.10
Cr.
Particular
By
Depreciation
Amount
10,000
(1,00,000 10/100)
10,000
01.01.11
Assets Disposal
31.12.11
Balance b/d
10,000
17,500
01.01.11
Balance b/d
10,000
1,250
01.10.11
Depreciation
7,500
1,00,000 10/1009/12
31.12.11
Depreciation
1,250
(50,000 10/1003/12)
18,750
31.12.12
Balance c/d
26,250
18,750
01.01.12
Balance b/d
1,250
01.10.12
Depreciation
25,000
4.19
(2,50,000 10/100)
26,250
26,250
01.01.13
Dr.
26,250
Assets Disposal A/c
Date
01.10.11
Balance b/d
To
Particular
Amount
Date
Assets
1,00,000
01.01.11
Cr.
Particular
By
Amount
Provision for depreciation
17,500
Profit and Loss A/c [loss]
12,500
Cash A/c
70,000
100,000
100,000
Question 8: A plant and machinery was purchased on 01.04.2010 for 1,20,000. The plant and machinery
had a life of 3 years with the residual value of 20,000. Calculate amount of depreciation, pass journal
entries and prepare ledger a/c under
1.
Sinking fund method
2.
Annuity method and
3.
Insurance Policy Method
Assume the rate of interest of 10% p.a. for sinking fund method and annuity method. Insurance premium
is payable at 30,000 p.a. at the beginning of every year.
Also rework under the insurance policy method, assuming the asset was destroyed at the end of the
second year and salvage value recovered was 30,000. The insurance claim receivable is 90,000
Answer:
Formula
Calculation
Sinking Fund Factor
0.30211
Annuity Factor
0.40211
Present
Value
0.7513
Factor
Calculation of Amount of Depreciation
1
Sinking Fund
Amount required for replacement
(1,20,00020,000)0.30211
30,211
(1,20,000 20,000 0.7513)
42,211
SFF
2
Annuity
(Original Cost PVF Scrap Value)
4.20
Annuity Factor
3
Insurance Policy
0.40211
Insurance Premium
30,000
Method I: Sinking Fund Method

Year
Journal Entries
Plant and Machinery A/c
Debit
Dr
Credit
1,20,000
0
To Bank A/c
Profit and Loss A/c
1,20,000
Dr
30,211
To Depreciation Fund Reserve A/c
30,211
1
Depreciation Fund Investment A/c
Dr
30,211
To Bank A/c
Bank A/c
30,211
Dr
3,021
To Interest on Depreciation Fund Investment A/c
3,021
Profit and Loss A/c
Dr
30,211
Interest on Depreciation Fund Investment A/c
Dr
3,021

Depreciation Fund Investment A/c
33,232
Dr
33,232
To Bank A/c
Bank A/c
33,232
Dr
6,344
To Interest on Depreciation Fund Investment A/c
6,344
Profit and Loss A/c
Dr
30,211
Interest on Depreciation Fund Investment A/c
Dr
6,344
36,555
3
Bank A/c
Dr
63,443
To Depreciation Fund Investment A/c
63,443
Bank A/c
Dr
20,000
Depreciation Fund Reserve A/c
Dr
1,00,000
To Assets A/c
1,20,000
4.21
Method II: Annuity Method

Year
Journal Entries
Debit
Dr
Credit
1,20,000
0
To Bank A/c
1,20,000
Dr
12,000
To Interest A/c
12,000
Depreciation A/c
Dr
42,211
1
To Plant and Machinery A/c
Profit and Loss A/c
42,211
Dr
42,211
To Depreciation A/c
42,211
Dr
8,979
To Interest A/c
8,979
Depreciation A/c
Dr
42,211
2
Profit and Loss A/c
42,211
Dr
42,211
To Depreciation A/c
42,211
Dr
5,656
To Interest A/c
5,656
Depreciation A/c
Dr
42,211
42,211
3
Profit and Loss A/c
Dr
42,211
To Depreciation A/c
42,211
Assets A/c
Dr
20,000
To Bank A/c
20,000
Method III: Insurance Policy Method

Year
Narration
Asset purchased
Journal Entries
Debit
Dr
1,20,000
To Bank A/c
1
Premium Paid
Depreciation Insurance Policy A/c
Credit
1,20,000
Dr
30,000
4.22
To Bank A/c
30,000
Depreciation A/c
Dr
30,000
Provision created
To Depreciation Provisions A/c
Depreciation
transferred to P/L a/c
30,000
Profit and Loss A/c
Dr
30,000
To Depreciation A/c
30,000
Dr
30,000
Premium Paid
To Bank A/c
30,000
Depreciation A/c
Dr
30,000
Provision created

Depreciation
30,000
Profit and Loss A/c
Dr
30,000
To Depreciation A/c
30,000
Dr
30,000
Premium Paid
To Bank A/c
30,000
Depreciation A/c
Dr
30,000
Provision created
Depreciation
3
30,000
Profit and Loss A/c
Dr
30,000
To Depreciation A/c
30,000
Bank A/c
Dr
1,00,000
Policy realized
To Depreciation Insurance Policy A/c
1,00,000
Dr
10,000
Profit on policy transferred

To Depreciation Provision A/c
Asset sold
10,000
Bank A/c
Dr
20,000
Depreciation Provision A/c
Dr
1,00,000
To Asset A/c
Dr.
Assets A/c
Date
01.04.10
1,20,000
To
Particular
Amount
Date
Bank Purchase
1,20,000
31.03.11
Cr.
Particular
By
Balance c/d
1,20,000
01.04.11
Balance b/d
1,20,000
Amount
1,20,000
1,20,000
31.03.12
Balance c/d
1,20,000
4.23
1,20,000
01.04.12
Balance b/d
1,20,000
1,20,000
31.03.13
Bank A/c
20,000
Provision for Depreciation

1,20,000
Dr.
1,20,000
Date
31.03.11
31.03.12
To
Particular
Amount
Balance c/d
30,000
31.03.11
Balance c/d
60,000
Date
Cr.
Particular
Amount
Depreciation
30,000
01.04.11
Balance b/d
30,000
31.03.12
Depreciation
30,000
By
60,000
31.12.12
1,00,000
60,000
01.04.12
Balance b/d
60,000
31.03.12
Depreciation
30,000
31.03.12
Insurance Policy
10,000
1,00,000
1,00,000
Method III: Insurance Policy Method assuming the asset destroyed in second year
Year
Narration
Asset purchased
Journal Entries
Debit
Dr
1,20,000
To Bank A/c
Credit
1,20,000
Dr
30,000
Premium Paid
To Bank A/c
Depreciation A/c
1
30,000
Dr
30,000
Provision created
Depreciation
Profit and Loss A/c
30,000
Dr
30,000
To Depreciation A/c
30,000
Dr
30,000
Premium Paid
2
To Bank A/c
Provision created
Depreciation A/c
30,000
Dr
30,000
4.24

Depreciation
30,000
Profit and Loss A/c
Dr
30,000
To Depreciation A/c
30,000
Bank A/c
Dr
90,000
Policy realized
To Depreciation Insurance Policy A/c
90,000
Dr
30,000
Profit on policy transferred

To Depreciation Provision A/c
Asset sold
30,000
Bank A/c
Dr
30,000
Depreciation Provision A/c
Dr
90,000
To Asset A/c
1,20,000
[CMA RTP J11]

Question 9: M/s Suba chemicals has imported a machine on 1 st July 2007 for $ 6,000 paid customs duty
and freight 52,000 and incurred erection charges 20,000. Another local machinery costing 1,00,000
was purchased on January 1, 2008. On 1st July 2009, a portion of the imported machinery (value one-third)
got out of order and was sold for 34,800. New Machinery was purchased to replace the same for 50,000.
Depreciation is to be calculated at 20% p.a. on straight-line method. Prepare the Machinery Account and
Machinery Disposal Account for 2007, 2008 and 2009. Exchange rate is 38 per $
Answer:
Dr.
Machinery Account Books of M/s. Suba Chemicals
Date
01.07.07
To
Particular
Amount
Date
Bank Purchase
2,28,000
31.12.07
Particular
By
Depreciation
Cr.
Amount
30,000
(3,00,000 20/1001/2)
Bank Duty etc.
52,000
Bank Erection
20,000
Balance c/d
3,00,000
01.01.08
Balance b/d
2,70,000
Bank Purchase
1,00,000
3,00,000
31.12.08
Depreciation
i. 3,00,000 20/100
60,000
ii. 1,00,000 20/100
20,000
Balance c/d
3,70,000
01.01.09
Balance b/d
2,90,000
2,70,000
2,90,000
3,70,000
01.07.09
Machinery disposal A/c
60,000
4.25
Depreciation:
i. 1,00,000 20/1001/2
Bank- Purchase
50,000
31.12.09
10,000
Depreciation:
i. 2,00,000 20/100
40,000
ii. 1,00,000 20/100
20,000
iii. 50,000 20/100
5,000
Balance c/d
2,05,000
3,90,000
01.01.10
3,90,000
2,05,000
Dr.
Machinery Disposal Account
Date
01.07.09
To
Particular
Machinery
60,000
Date
Cr.
Particular
01.07.09
By
Bank Sale Proceeds
34,800
Profit & Loss A/c
25,200
60,000
60,000
Note:
1.
Book value of Machinery as on July 1, 2009 will be as follows:
Original Cost on July 1, 2007 (3,00,000 1/3)

Less
1,00,000
Depreciation for 2007 (for 6 months) (1,00,000 20/1001/2)
10,000
90,000
Less
Depreciation for 2008 (1,00,000 20/100)
20,000
70,000
Less
Depreciation for 2009 (for 6 months) (1,00,000 20/1001/2)
10,000
60,000
2.
If Machinery Disposal Accounts is not kept, then Machinery account for the year 2009 will be
prepared as under:
Dr.
Machinery Account (for 2009)
Date
01.01.09
To
Particular
Amount
Date
Balance b/d
2,90,000
01.07.09
Cr.
Particular
By
Depreciation
Amount
10,000
4.26
Bank
50,000
Bank- Sale Proceeds
34,800
Profit & Loss A/c
25,200
Loss on Sale (60,000 34,800)

Depreciation
65,000
Balance c/d
2,05,000
3,40,000
01.01.10
Balance b/d
3,40,000
2,05,000
[CMA INTER SY08, J13, 5 Marks]

Question 10: On December, 2011 two machines, which were purchased on 1 st October, 2008 costing
50,000 and 20,000 respectively had to be discarded and replaced by two new machines costing 50,000
and 25,000 respectively.
One of the discarded machines was sold for 20,000 and other for 10,000. The balance of Machinery
Accounts as on April 1, 2011 was 3,00,000 against which the depreciation provision stood at 1,50,000.
Depreciation was provided @ 10% on Reducing Balance Method.
Prepare the Machinery A/c, Provision for Depreciation A/c and machinery Disposal A/c.
Answer:
Dr
Machinery Account
Date
1-4-2011
To
31-12-11
Particulars
Amt. ( )
Date
Balance c/d
3,00,000
31-12-2011
75,000
31-03-2012
Bank
Cr
Particulars
By
Amt. ( )
Machinery Disposal
Balance c/d
3,75,000
1-4-2013
Balance b/d
Dr.
31.12.11
3,25,000
Particulars
To
Machinery Disposal a/c
Amt. ( )
20,175
[16,135+4,040]
31.03.12
Balance c/d
Date
01.04.11
31.12.11
1,41,314
Cr.
Particulars
By
Balance b/d
P & L A/c [WN 1]
Amt. ( )
1,50,000
11,489
31.03.12
1,61,489
1,61,489
1-4-12
3,25,000
3,75,000
Provision for Depreciation Account
Date
70,000
Balance b/d
1,41,314
4.27
Dr.
Date
31-12-11
To
Particulars
Date
Machinery A/c
70,000
31-12-11
By
Cr.
Particulars
20,175
Bank
30,000
P & L A/c (Bal fig.)
19,825
70,000
70,000
Working Notes:
1.
Depreciation on the machines till April 1, 2012

01.10.08
Original Value
Depreciation [01.10.08-31.03.09]
Written Down Value
31.03.09
Depreciation [01.04.09-31.03.10]
Written Down Value
31.03.10
Depreciation [01.04.10-31.03.11]
Written Down Value
31.03.11
Machine 1
Machine 2
Total
50,000
20,000
70,000
2,500
1,000
3,500
47,500
19,000
66,500
4,750
1,900
6,650
42,750
17,100
59,850
4,275
1,710
5,985
38,475
15,390
53,865
Depreciation [01.04.11-31.12.11]
Written Down Value
31.12.11
Total depreciation on assets sold
16,135
[3,500+6,650+5,985]
Depreciation on Discarded Machine
Book Value of Machine as on 01.04.2011

Less
53,865
Depreciation @ 10% for 9 months [till 31.12.11]
4,040
Value of Discarded Machine as on selling date
49,825
Depreciation of machinery in use
Value of machinery on 1st April, 2011

Less
3,00,000
Cost of discarded machines:
70,000
2,30,000
Less
Provision for Depreciation on 1 April, 2011
1,50,000
Less: Depreciation on discarded machines:
16,135
1,33,865
4.28
96,135
Add
Depreciation @ 10% on 96,135
9,614
Depreciation for 3 months on 75,000
1,875
11,489
[CMA RTP J12]

Question 11: On December, 2011 two machines, which were purchased on 1st October, 2008 costing
30,000 and 24,000 respectively had to be discarded and replaced by two new machines costing 40,000
and 30,000 respectively.
One of the discarded machines was sold for 16,000 and other for 6,000. The balance of Machinery
Accounts as on April 1, 2011 was 5,00,000 against which the depreciation provision stood at 2,10,000.
Depreciation was provided @ 10% on WDV method.
Prepare the Machinery A/c, Provision for Depreciation A/c and machinery Disposal A/c.
Answer:
Dr
Machinery Account
Date
1-4-2011
To
31-12-11
Particulars
Amt. ( )
Balance c/d
500000
31-12-2011
70000
31-03-2012
Bank
Cr
Date
Particulars
By
Amt. ( )
Machinery Disposal
Balance c/d
570000
1-4-2013
Balance b/d
Dr.
31.12.11
31.03.12
516000
Particulars
To
Machinery Disposal a/c
Balance c/d
Amt. ( )
15,564
224147
Date
01.04.11
Cr.
Particulars
By
Balance b/d
Amt. ( )
2,10,000
31.12.11
P & L A/c [WN 1]
3,116
31.03.12
P & L A/c [WN 1]
26,595
2,39,711
2,39,711
1-4-12
516000
570000
Provision for Depreciation Account
Date
54000
Balance b/d
224147
4.29
Dr.

Particulars
Date
Machinery A/c
54,000
31-12-11
Date
31-12-11
To
By
Cr.
Particulars
15,564
Bank
22,000
P & L A/c (Bal fig.)
16436
54,000
54000
Working Notes:
1.
Depreciation on the two machines till April 1, 2012

01.10.08
Original Value
Written Down Value

Depreciation [01.04.09-31.03.10]
Written Down Value
31.03.10
Depreciation [01.04.10-31.03.11]
Written Down Value
31.03.11
Depreciation [01.04.11-31.12.11]
Written Down Value
31.12.11
54,000
Depreciation [01.10.08-31.03.09]
31.03.09
Total depreciation on assets sold
2,700
51,300
5,130
46,170
4,617
41,553
3,116
38,436
15,564
Depreciation of machinery in use
Value of machinery on 1st April, 2011

Less
5,00,000
Cost of discarded machines:
54,000
4,46,000
Less
Provision for Depreciation on 1 April, 2011
2,10,000
Less: Depreciation on discarded machines:
12,447
1,97,553
2,48,447
Depreciation @ 10% on 2,48,447

Add
Depreciation for 3 months on 70000
24,845
1,750
26,595
4.30
[CMA INTER SY08, J14, 6 Marks]

Question 12: On 1st April, 2010, M/s. N. R. Sons & Co. purchased four machines for 2,60,000 each. On
1st April, 2011, one machine was sold for 2,05,000. On 1st July, 2012, the second machine was destroyed
by fire and insurance claim received 1,75,000 on 15th July,2012. A new machine costing 4,50,000 was
purchased on 1st October, 2012. Books are closed on 31st March every year and depreciation has been
charged @15% per annum on diminishing balance method. You are required to prepare machinery
account for 4 years till 31st March, 2014. (Calculations to be shown in nearest rupee)
Answer:
Dr
Machinery Account
Date
Particular
01.04.10
To
Bank A/c
Date
10,40,000
31.03.11
Cr
Particular
By
31.03.11
Depreciation A/c
1,56,000
Balance c/d
8,84,000
10,40,000
01.04.11
Balance b/d
8,84,000
10,40,000
01.04.11
Bank a/c (machinery sold)
2,05,000
31.03.12
Depreciation
99,450
31.03.12
P& L A/c (Loss on sale)
16,000
Balance c/d
5,63,550
8,84,000
01.04.12
01.10.12
Balance b/d
Bank
5,63,550
4,50,000
8,84,000
01.07.12
Insurance claim
1,75,000
P&L A/c (Loss on destroy)
5,806
Depreciation A/c
7,044
31.03.13
Depreciation A/c
90,106
31.03.13
Balance c/d
7,35,595
10,13,550
01.04.13
Balance b/d
7,35,595
10,13,550
31.03.14
Depreciation
1,10,339
31.03.14
Balance c/d
6,25,256
7,35,595
01.04.14
Balance b/d
7,35,595
6,25,256
Workings
Particulars
M-1
M- 2
M-3
M- 4
01.04.2010 Purchased of Machinery
2,60,000
2,60,000
2,60,000
2,60,000
M- 5
-
4.31
Less
Less
Depreciation@15% p. a
39,000
39,000
39,000
39,000
W.D.V. on 31.03.11
2,21,000
2,21,000
2,21,000
2,21,000
Sold of machinery on 01.04.11
2,05,000
16,000
33,150
33,150
33,150
1,87,850
1,87,850
1,87,850
7,044
1,80,806
1,87,850
1,87,850
Loss on Sale
Less
Depreciation @ 15% P.a.

W. D. V. on 31.03.12
Less
Depreciation @ 15% for 3 months i.e. 01.04.12-
01.07.12
Less
Amount recd from Insurance claim
1,75,000
Loss on fire
5,806
On 10.10.12 Purchased of machinery

Less
Less
4,50,000
Depreciation of 2 machines for full years
28,177
1,59,672
1,59,673
33,750
1,59,672
1,59,673
4,16,250
23,951
23,950
62,438
1,35,721
1,35,723
3,53,812
Depreciation for 6th months of new machinery

W.D.V. for 31.03.13
Less
28,178
Depreciation for full year @ 15% p.a.
[CMA INTER J10, 5 Marks]

Question 13: From the following information prepare.
1.
Fixed Assets Account and
2.
Accumulated Depreciation Account :

Opening Balance Closing Balance
Fixed Assets
Accumulated Depreciation
4,00,000
5,50,000
80,000
1,35,000
Additional Information: A part of a machine costing 60,000 has been sold for 30,000 on which
accumulated depreciation was 15,000.
4.32
Answer:
Dr
To
Fixed Assets A/c

Balance b/d
4,00,000
Bank A/c
2,10,000
By
Cr
Accu. Depreciation
15,000
Bank A/c
30,000
Loss on sale of Asset
15,000
Balance c/d
6,10,000
Dr
To
6,10,000
Accumulated Depreciation A/c

Fixed Assets A/c
Balance c/c
15,000
5,50,000
By
1,35,000
Cr
Balance b/d
80,000
Profit and Loss A/c
70,000
1,50,000
1,50,000
CHANGE IN METHODS OF DEPRECIATION AND ESTIMATION
Question 14: Change In Estimated Useful Life: Plant has useful life of 10 years. Depreciable amount is
40 lakhs. The company has charged SLM depreciation. At the end of 6 th year, the balance useful life was
re-estimated at 8 years. What is the depreciation will be charged from 7 th year?
Answer: =
=2
Question 15: A plant was depreciated under two different methods as under:SLM
WDVM
I year
3.90
10.69
II year
3.90
7.90
III year
3.90
5.84
IV year
3.90
4.32
15.60
28.75
3.90
3.19
V year
Required:
1.
If the company followed WDV for first four years and decides to switch over to SLM, what would be
the amount of resultant surplus/deficiency?
4.33
2.
It the company followed SLM for first four years and decides to switch over to WDV, what would be
amount of resultant surplus/deficiency?
Answer: The change should be treated as a change in accounting policy and its effects should be
quantified and disclosed. The effect
1.
Surplus of 13.15 will be written back to profit and loss account.
2.
Deficiency of 13.15 should be charged to profit and loss account.
[CMA FOUNDATION J02, 16 Marks]

Question 16: Depreciation has been charged for the years 1998 to 2001 at 10% on reducing balance
method on opening balance of each item of plant and machinery in use. The balance of Plant and
Machinery Account on 31st December, 2001 was 54,000. There were no sales during these years and
purchases were 16,800 on September, 1998 and 11,400 in December 2000.
The management decided that depreciation should be charged at 20% on the same method but calculate
on the closing balance of each year with retrospective effect from 1998.
You are required to pass journal entry for giving effect to the revised basis at the end of 2001, and prepare
Plant and Machinery Account and Revised Plant and Machinery Account for all the years.
Answer: The Balance of Plant & Machinery accounts as on January 1998 is not given. This balance is to be
ascertained by working reversed way from 2001, by following original rate of depreciation i.e. 10% WDV.
Plant & Machinery Account
01.01.98
Sept
To
Particulars
Amount
Balance b/d
48,000
Bank
16,800
Particulars
31.12.98
By
Depreciation
(
31.12.98
Balance b/d
60,000
4,800
60,000 16,800)
Balance c/d
64,800
01.01.99
Amount
60,000
64,800
31.12.99
Depreciation
6,000
(1/9 of 54,000)
31.12.99
Balance c/d
60,000
01.01.00
Balance b/d
54,000
Dec
Bank A/c
11,400
65,400
54,000
60,000
31.12.00
Depreciation
31.12.00
Balance c/d
5,400
60,000
65,400
4.34
01.01.01
Balance b/d
60,000
31.12.01
Depreciation (
31.12.01
Balance c/d
54,000)
6,000
54,000
60,000
60,000
When depreciation is calculated on the revised basis, the Plant & Machinery Account will be as under:
Revised Plant & Machinery
01.01.98
To
Sept
Particulars
Amount
Balance b/d
48,000
Bank
16,800
Particulars
31.12.98
By
Amount
Depreciation
12,960
(20% on 64,800)
Balance c/d
51,840
64,800
01.01.99
Balance b/d
51,840
64,800
31.12.99
Depreciation
10,368
(20% on 51,840)
Balance c/d
41,472
51,840
01.01.00
Balance b/d
41,472
Dec
Bank A/c
11,400
51,840
31.12.00
Depreciation
10,574
(20% on 52,872)
Balance c/d
42,298
52,872
01.01.01
Balance b/d
42,298
52,872
31.12.01
Depreciation
8,460
(20% on 42,298)
Balance c/d
33,838
42,298
42,298
The resultant impact on Profit and Loss A/c of 20,162 to be disclosed in notes to accounts
Depreciation
Residual
Depreciation
Residual
@ 10%
Value
@ 20%
Value
31.12.01
6,000
54,000
8,460
33,838
31.12.00
5,400
60,000
10,574
42,298
31.12.00
---
65,400
--
--
4.35
31.12.99
6,000
54,000
10,368
41,472
31.12.98
4,800
60,000
12,960
51,840
31.12.98
--
64,800
--
--
01.01.98
--
48,000
--
--
22,200
42,362
Difference (42,362 22,200) 20,162
Journal Entry
31.12.01
Depreciation A/c
Dr
2,460
Prior Period Adjustment A/c (Depreciation for Previous years)
Dr
17,702
To Plant & Machinery A/c
20,162
[Being arrear provision of Depreciation chargeable at the revised rate of 20% and charged @ 10% for the
year 1998 to 2000 (33, 902 16,200) and for the year 2001 (8,460 - 6,000) charged]
4.36

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Depreciation

Methods of Depreciation & Methods of

T K Sridhar [Singar Academy]

l.4 ACCOUNTING FOR DEPRECIATION

[CMA FOUNDATION D01, 4 Marks]

[CMA INTER SY08, D12, 3 Marks]

the production or supply of goods and services

for renting to others

for administrative purposes

not for the purpose of sale in the ordinary course of business.

Question 3: What is depreciable amount?

[CMA INTER J09, 5 Marks]

Question 5: What is the nature of depreciation?

Question 6: What are the Causes of Depreciation?

Effluxion of time [Passage of time]

Obsolescence [out-dated] [the economic deterioration by change in technology or taste or fashion]

Changes in economic environment

Expiration of legal rights.

Question 7: What is amortization and dilapidation?

Question 8: What are the factors affecting Amount of Depreciation

Expected Useful life

Estimated Residual Value.

Estimated useful life may be incorrect and misleading.

Certain uncertain factors affect predetermined quantum of depreciation.

Accounting for Depreciation

Question 9: What are the methods of recording depreciation?

By Charging to Asset A/c

By Creating Provision for Depreciation A/c

Depreciation is credited to Asset A/c

Asset appears at its Written down Value

Asset appears at its Original Cost.

(i.e. Cost less depreciation till date)

Question 10: Most Commonly Employed 2 Methods of Providing Depreciation

Straight Line Method (SLM)

Written Down Value (WDV) Method

Question 11: Write short note disclosure requirements as per AS6

Straight Line Method

Written Down Value Method

Depreciation is calculated at a fixed

Depreciations is calculated at a fixed

percentage on the original cost.

percentage on original cost (in first year)

and on written down value (in subsequent

The amount of depreciation goes on

Total charge in later years is more

Total charge remains almost uniform year

as compared to that in earlier years

after year, since in earlier years the amount

since renewals goes on increasing

of depreciation is more and the amount of

as the asset grows older, whereas

repairs and renewals is less whereas in

the amount of depreciation remains

latter years, the amount of depreciation is

constant year after year.

less and the amount of repairs & renewals is

becomes zero or equal to its scrap

The book value of the asset does not