Depreciation

Accounting
Group
8

MP15002 : Abhimanyu Singh

MP15021 : Kush Kumar
MP15030: Raghav Ajmani
MP15039 : Saurabh Sinha

What is Depreciation
Depreciation is terms as the allocation of the
depreciable amount of an asset over its estimated
life.
According to the matching concept, revenues should
be matched with expenses in order to determine the
accounting profit.
Hence the cost of the asset purchased should be
spread over the periods in which the asset will
benefit a company.

Objective
To calculate proper profits.
To show the asset at its reasonable value
To maintain the original monetary investment of the
asset intact.
Provision of depreciation results in some incidental
advantages also.
To provide for replacement of an asset.
Depreciation is permitted to be deducted from profits
for tax purposes.

Factors in Computing Depreciation Expense

-Initial cost of the Asset

-Expected useful life
-Estimated value at the end of
its useful life

Depreciation Methods: Straight Line

Provides for the same amount of depreciation expense for
each year of the assets useful life

Depreciation Methods:
Written Down Value/Declining Balance
Under this method depreciation is charged at a fixed rate
on the reducing balance every year.

Depreciation Methods: Sum of Digits

This method is used where the amount
of depreciation goes on decreasing in
the coming years
n (n+1) /2 ; where n=useful economic life (in years)

Depreciation Methods: Units of

Production
An asset's useful life is expressed in the
total units that are expected to be
produced or the asset's total activity during
its life. The asset's cost is then allocated to
the accounting periods based on the
asset's usage, units produced, activity, etc.

Problems

WRITTEN DOWN VALUE/DECLINING-BALANCE

WRITTEN DOWN VALUE/DECLINING-BALANCE

Straight Line Method

Straight Line Method

Sum of Digits Method/Sum of The Years Digits Method

Sum of Digits Method/Sum of The Years Digits Method

UNITS OF PRODUCTION