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These slides have been prepared based on the NCERT syllabus to support you in teaching Plus One and Plus Two Accountancy and Computerised Accounting.
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Mujeeb Rahiman C
HSST Commerce
GHSS Pattikkad
Malappuram Dt.
✉️ mujeebchemmala@gmail.com
9995983075 �
Methods of Calculating Depreciation Amount
2. Diminishing balance method
1. Fixed instalment method
(Straight Line Method)
(Written Down Value Method)
This method is based on the assumption of equal usage of the asset over its entire useful life.
It is also called fixed instalment method because the amount of depreciation remains constant from year to year over the useful life of the asset.
1. Straight Line Method
Depreciation = Cost of the asset – Estimated scrap value
Estimated life of the asset
Rate of Depreciation = Annual depreciation amount
Acquisition cost of the asset
x 100
Methods of Recording Depreciation
1. Charging depreciation to asset account o
2. Creating Provision for depreciation/Accumulated depreciation account.
1. Charging Depreciation to Asset account
Depreciation is deducted from the cost of the asset (credited to the asset account) and charged (or debited) to profit and loss account.
Journal entries :
1. For recording purchase of asset
Asset A/c Dr.
To Bank/Vendor A/c
(only in the year of purchase with the cost of asset
including installation, freight, etc.)
2. Following entries are recorded at the end of every year
(a) For deducting depreciation from the cost of the asset.
Depreciation A/c Dr.
To Asset A/c
(with the amount of depreciation)
(b) For charging depreciation to profit and loss account.
Profit & Loss A/c Dr.
To Depreciation A/c
(with the amount of depreciation)
3. Balance Sheet Treatment
The Fixed asset appears at its net book value (i.e. cost less depreciation) on the asset side of the balance sheet.
On July 01, 2020, Ashok Ltd. Purchased a Machine for Rs. 1,08,000, spent Rs. 2000 for transportation and Rs. 10,000 on its installation. At the time of purchase it was estimated that the effective life of the machine will be 5 years and after 5 years its salvage value will be Rs. 20,000.
Prepare machine account in the books of Ashok Ltd. for first three years, if depreciation is written off according to straight line method. The account are closed on December 31st, every year.
Depreciation = Cost of the asset – Estimated scrap value
Estimated life of the asset
Depreciation = 1,20,000 – 20,000 = 1,00,000 = 20,000
5 5
Cost of the asset = 1,08,000 + 2000 + 10,000
= 1,20,000
Machinery Account
Date
Amount
Date
Amount
Cash Account
(1,08,000+2,000+10,000)
Particulars
Particulars
120000
01/07/20
JF
JF
Depreciation (20000x6/12)
31/12/20
10000
120000
120000
110000
31/12/20
Balance c/d
110000
01/01/21
Balance b/d
Depreciation
31/12/21
20000
110000
110000
90000
31/12/21
Balance c/d
90000
01/01/22
Balance b/d
70000
31/12/22
Balance c/d
Depreciation
31/12/22
20000
90000
90000
MUJEEB RAHIMAN C
HSST COMMERCE
GHSS PATTIKKAD
MALAPPURAM DT
On 1st April 2001 Hitech Co. Ltd. bought Machinery at a cost of Rs. 60,000/-. On 1st July 2002, additional machinery costing Rs. 10,000/- was purchased. On 1st October 2003 the machinery purchased in 2002 was sold for Rs. 8000.
Write up the Machinery Account for the first three years. The company closes its accounts on 31st March every year and provides depreciation at 15% on straight line basis.
Machinery Account
Date
Amount
Date
Amount
Cash Account
Particulars
Particulars
60000
01/04/01
JF
JF
Depreciation
31/03/02
9000
60000
60000
51000
31/03/02
Balance c/d
51000
01/04/02
Balance b/d
Cash Account
10000
01/07/02
Depreciation
31/03/03
10125
61000
61000
50875
31/03/03
Balance c/d
50875
01/04/03
Balance b/d
Depreciation (2)
31/03/04
9000
33000
31/03/04
Balance c/d
50875
50875
On 1st April 2001 Hitech Co. Ltd. bought Machinery at a cost of Rs. 60,000/-.
The company closes its accounts on 31st March every year
and provides depreciation at 15% on straight line basis.
60000 x 15 = 9000
100
On 1st July 2002, additional machinery costing Rs. 10,000/- was purchased.
Machinery II 10000 x 15 x 9 = 1125
100 12
Machinery I - 60000 x 15 = 9000
100
Depreciation (1)
01/10/03
750
Cash
01/10/03
8000
Profit & Loss A/c (Loss)
01/10/03
125
Depreciation on asset sold
1st Year 10000 x 15 x 9 = 1125 (01/07/2002 to 31/03/2003)
100 12
2nd Year 10000 x 15 x 6 = 750 (01/04/2003 to 30/09/2003)
100 12
Profit/Loss asset sold
Value of asset on 1st Oct 2003
10000 – 1125 – 750 = 8125
Sale price = 8000
Loss on sale = 125
60000 x 15 = 9000
100
On 1st October 2003 the machinery purchased in 2002 was sold for Rs. 8000.
MUJEEB RAHIMAN C
HSST COMMERCE
GHSS PATTIKKAD
MALAPPURAM DT
Journal
1. It is very simple and easy to understand
2. Asset can be depreciated upto the scrap value or zero value
3. Every year, same amount is charged as depreciation
4. This method is suitable for those assets whose useful life
can be estimated accurately
Advantages of Straight Line Method
Journal
1. This method is based on the faulty assumption of same amount
of the utility of an asset in different accounting years
2. With the passage of time, work efficiency of the asset
decreases and repair and maintenance expense increases
Limitations of Straight Line Method
MUJEEB RAHIMAN C
HSST COMMERCE
GHSS PATTIKKAD
MALAPPURAM DT
MUJEEB RAHIMAN C
HSST COMMERCE
GHSS PATTIKKAD
MALAPPURAM DT