Dear Teachers,
These slides have been prepared based on the NCERT syllabus to support you in teaching Plus One and Plus Two Accountancy and Computerised Accounting.
Please review and verify the content before using it in your classrooms. If you find any errors or have feedback, please let me know.
Mujeeb Rahiman C
HSST Commerce
GHSS Pattikkad
Malappuram Dt.
✉️ mujeebchemmala@gmail.com
9995983075 �
Methods of Calculating Depreciation Amount
1. Straight Line Method
2. Written Down Value Method
(Diminishing balance method)
(Fixed instalment method)
Under this method, depreciation is charged on the book value of the asset.
Since book value keeps on reducing by the annual depreciation, the amount of depreciation reduces year after year. it is also known as reducing balance method.
2. Written Down Value Method
(reducing/diminishing balance method)
On July 01, 2020, Ashok Ltd. Purchased a Machine for Rs. 88,000, spent Rs. 2000 for transportation and Rs. 10,000 on its installation.
Prepare machine account in the books of Ashok Ltd. for first three years, if depreciation @ 10% is written off according to Written down value method. The account are closed on March 31st, every year.
Illustration
Machinery Account
Date
Amount
Date
Amount
Cash Account
(88,000+2,000+10,000)
Particulars
Particulars
100000
01/07/20
JF
JF
Depreciation (100000x10/100x9/12)
31/03/21
7500
100000
100000
92500
31/03/21
Balance c/d
92500
01/04/21
Balance b/d
Depreciation (92500 x 10/00)
31/03/22
9250
92500
92500
83250
31/03/22
Balance c/d
83250
01/04/22
Balance b/d
74925
31/03/23
Balance c/d
Depreciation (83250 x 10/100)
31/03/23
8325
83250
83250
MUJEEB RAHIMAN C
HSST COMMERCE
GHSS PATTIKKAD
MALAPPURAM DT
A company purchased some furniture costing Rs. 20000/- on 1st Jan 2000. They decided to write off depreciation @ 10% per annum on the diminishing balance annually on 31st December. On 30th September 2001 purchased further furniture items worth Rs. 10000/-. On 1st July 2002 some furniture items purchased in 2000, which originally cost Rs. 2000/- was sold for Rs. 1800.
Show the furniture account for the years 2000 to 2002
Illustration
Furniture Account
Date
Amount
Date
Amount
Cash Account
Particulars
Particulars
20000
01/01/00
JF
JF
Depreciation
31/12/00
2000
20000
20000
18000
31/12/00
Balance c/d
18000
01/01/01
Balance b/d
Cash Account
10000
30/09/01
Depreciation
31/12/01
2050
28000
28000
25950
31/12/01
Balance c/d
25950
01/01/02
Balance b/d
Depreciation (1)
01/07/02
81
1800
01/07/02
Cash
26211
26211
20000 x 10 = 2000
100
261
01/07/02
Profit & Loss Account (profit)
2433
31/12/02
Depreciation (2)
21897
31/12/02
Balance c/d
A company purchased some furniture costing Rs. 20000/- on 1st Jan 2000.
They decided to write off depreciation @ 10% per annum on the diminishing balance annually on 31st December.
On 30th September 2001 purchased further furniture items worth Rs. 10000/-.
Furniture (1) 18000 x 10 = 1800 Furniture (2) 10000 x 10 x 3 = 250
100 100 12
Depreciation on asset sold
1st Year 2000 2000 x 10 = 200
100
2nd Year 2000-200 = 1800 1800 x 10 = 180
100
3rd Year 1800-180 = 1620 1620 x 10 x 6 = 81
100 12
On 1st July 2002 some furniture items purchased in 2000, which originally cost Rs. 2000/- was sold for Rs. 1800.
Profit on asset sold
Written down value of furniture
as on 01/07/2002
2000 – 200 – 180 – 81 = 1539
Sale Price = 1800
Profit on sale = 261
Depreciation for the year 2002
The written down value of unsold furniture
= 25950 – 1620 = 24330
Depreciation = 24330 x 10 = 2433
100
MUJEEB RAHIMAN C
HSST COMMERCE
GHSS PATTIKKAD
MALAPPURAM DT
Journal
1. This method is based on a more realistic assumption that
the benefits from asset go on diminishing (reducing) with
the passage of time
2. It results into almost equal burden of depreciation and repair
expenses
3. Income Tax Act accept this method for tax purposes
4. This method is suitable for fixed assets which last for long
Advantages of Written Down Value Method
Journal
1. As depreciation is calculated at fixed percentage of written
down value, depreciable cost of the asset cannot be fully
written-off
2. It is difficult to ascertain a suitable rate of depreciation
Limitations of Written Down Value Method
Straight Line Method
Diminishing Balance Method
Based on Original Cost
Based on Book Value
Fixed Every year
Diminishing year after year
Not recognised by Income Tax
Differences between Straight Line and Diminishing Balance Methods
Recognised by Income Tax
MUJEEB RAHIMAN C
HSST COMMERCE
GHSS PATTIKKAD
MALAPPURAM DT
Use of Asset Disposal Account
Asset disposal account is designed to provide a complete and clear view of all the transactions involved in the sale of an asset under one account head. This method is generally used when a part of the asset is sold and provision for depreciation account exists.
Under this method, a new account titled Asset Disposal Account is opened.
The original cost of the asset being sold is debited and accumulated depreciation amount appearing in provision for depreciation account is credited to the asset disposal account.
The net amount realised from the sale of the asset is also credited to this account. The balance of asset disposal account shows profit or loss which is transferred to profit and loss account.
Journal entries :
1. Asset Disposal A/c Dr.
To Asset A/c
(With the original cost of asset being sold)
2. Provision for Depreciation A/c Dr.
To Asset Disposal A/c
(With accumulated balance in provision for depreciation A/c)
3. Bank A/c Dr.
To Asset Disposal A/c
(With the net sales proceeds)
Asset Disposal Account may ultimately show a debit or credit balance. The debit balance on the account indicate loss on disposal and would be dealt with as follows:
Profit and Loss A/c Dr.
To Asset Disposal A/c
(With the amount of loss on sale)
The credit balance of the account, profit on disposal and would be closed by the following journal entry:
Asset Disposal A/c Dr.
To Profit and Loss A/c
(With the amount of profit on sale)
MUJEEB RAHIMAN C
HSST COMMERCE
GHSS PATTIKKAD
MALAPPURAM DT