Depreciation methods ppt

depreciation in financial accounting ppt financial accounting concepts ppt
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Dr.NishaGupta,India,Teacher
Published Date:25-07-2017
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Depreciation Accounting CPT Section A: Fundamentals of Accounting. Chapter-5 : Depreciation Accounting Part 4: Methods of Depreciation/Sale of Fixed Asset CA. Poonam Patni The Topics Already covered in Part 2 Straight Line Method (SLM) Reducing Balance Method (WDV) Differences between SLM & WDV Method Sum of Digits Method The Topics Already covered in Part 3 Annuity Method Sinking Fund Method Machine Hour Rate Method Production Unit Method Learning Objectives INSURANCE DEPLETION POLICY METHOD DOUBLE SALE OF METHOD DECLINING DEPRECIABLE Pros. METHOD ASSET Pros. Cons. Example Example Cons. Example Example Insurance Policy Method Depreciatio Premiums n equal to instead of Premium Investment Policy Policy A/c amount Dr. on paid by the payment of Insurance Premium Company Advantages Risk of Loss on the Sale of Investment is avoided. The trouble and Expenses of buying Investment are avoided. Disadvantages Interest received on the Premiums Paid is comparatively very low. Example: On 1st January, 2011 a business purchases a three year lease of premises for • Show the LEDGER Rs 20,000/- and it is decided ACCOUNTS to make a provision for dealing with this matter. replacement of the lease by means of an insurance policy purchased for an annual premium of Rs.6400/- Lease Hold Account Date Particulars Amount Date Particulars Amount 2011 2011 Jan. 1 To Bank A/c 20,000 Dec. 31 By Balance C/d 20,000 2012 2012 Jan. 1 To Bal b/d 20,000 Dec. 31 By Balance C/d 20,000 2013 2013 Jan. 1 To Bal b/d 20,000 Dec. 31 By Dep. Fund A/c 20,000 Leasehold Policy Account Date Particulars Rs. Date Particulars Rs. 2011 2011 Dec. 31 To Bank A/c 6,400 Dec. 31 By Balance c/d 6,400 6400 6400 2012 2012 Jan. 1 To Balance b/d 6,400 Dec. 31 By Balance c/d 12,800 Dec. 31 To Bank A/c 6,400 12,800 12,800 2013 2013 Jan.1 To Balance b/d 12,800 Dec.31 By Bank A/c 20,000 Dec.31 To Bank A/c 6,400 To Dep. Fund Dec.31 800 A/c 20,000 20,000 DEPRECIATION FUND ACCOUNT Date Particulars Rs. Date Particulars Rs. 2011 2011 Dec. 31 To Bal c/d 6,400 Dec. 31 By Dep. a/c 6,400 2012 2012 Dec. 31 To Bal c/d 12,800 Jan. 1 By Bal b/d 6,400 Dec. 31 By Dep. a/c 6,400 12,800 12,800 2013 2013 To Leasehold Dec. 31 20,000 Jan. 1 By Bal b/d 12,800 Property Dec. 31 By Dep. a/c 6,400 By L/H Policy Dec.31 800 A/c 20,000 20,000 Depletion Method This Method is useful for Particular type of Industries. Example: Depreciation is Mines, charged on the basis Quarries, of output of that year. Sand Pits etc. Advantages Very Simple Disadvantages Production is not Certain EXAMPLE: If a mine is acquired at Rs. 12,00,000 and if it is thought that a total quantity of 80,000 tonnes of material will be available; The depreciation rate is Rs. 15, i.e. Rs. 12,00,000 divided by 80,000. If next year 8,000 tonnes First year 6,000 tonnes are extracted, the of material is extracted, depreciation would be the depreciation will be Rs.1,20,000 i.e. 8,00015 6,00015, i.e. Rs. 36,000. and so on. Double Declining Method Steps: Calculate Annual Depreciation as per straight line method. Calculate rate of depreciation as per straight line method. Two times of this rate will be the rate as double declining method. Use this rate similar to diminishing balance method. Example: XYZ Ltd. acquired a machine costing Rs. 200000 having estimated useful life of 5 years. The expected salvage value of the machine after 5 years is Rs. 30000. Calculate rate of depreciation according to Double Declining Method. solution: Annual Depreciation as per SLM =200000-30000/5 =34000 Rate of Depreciation = 34000100/200000 = 17% Rate for Double Declining Method = 182 = 34% Multiple Choice Questions: Q.1 In which of the following methods, the cost of the asset is not spread over in equal proportion during its useful economic life? • Straight Line Method • Written Down Value Method • Units of Production Method • All of the above • 2 and 3 • 1 and 2 Options • 3 and 4 • 1 and 4 Sale of Depreciable Assets When ever an asset is sold during the year, depreciation is charged on it for the period it has been used. The WDV remaining after charging depreciation is used for calculating Profit & loss on sale.

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