AS-6 DEPRECIATION

ACCOUNTING
NIDARSHAN GOWDA
RINAZ
THAMJEED
ALWAN
MUHSIN

PRESENTATION PATH
Meaning

& Definition
Features & Causes of Depreciation
Depreciable Assets
Applicability of AS-6
Calculation of Depreciation
Methods of Depreciation
Change in method of Depreciation
Important points of AS-6

MEANING

Depreciation means decline in the value of fixed assets

on a/c of use & effluxion of time.
Depreciation is a gradual, continuous & permanent
decrease in the value of an asset.
It was issued in 1982 by ICAI & later on revised in
1994.

DEFINITION
AS-6,Depreciation

Accounting
defines depreciation as a
measure of the wearing out
consumption or other loss of
value of a depreciable asset
arising from use, effluxion of
time or obsolescence through
technology or market changes.

FEATURES & CAUSES

Features of Depreciation
Depreciation is a part of operating cost.
It is a reduction in the value of an asset.
The decrease in the value of an asset is gradual &
continious.
Causes of Depreciation
Physical wear & tear
Physical Deterioration
Expiry of legal rights
Obsolescence

DEPRECIABLE ASSETS

1.
2.
3.

Depreciable Assets are those assets which:

are expected to be used for more than 1 accounting
period.
Have a limited useful life.
Are held for the purpose of production of goods &
services.

APPLICABILITY OF AS-6
AS-6 is applicable to all depreciable assets, except the
following:
i. Forests, Plantation
ii. Wasting Assets, Minerals
iii. Expenditure on R & D
iv. Goodwill
v. Live-stock cattle, Animal Husbandry

CALCULATION OF
DEPRECIATION
The

amount of Depreciation is calculated as

under:
1) Historical cost of the asset.
2) Estimated useful life of depreciable asset.
3) Estimated residual/scrap value of depreciable
assets.

METHODS OF DEPRECIATION
1.
2.
3.
4.
5.
6.
7.
8.
9.

Fixed Installment Method

Reducing Balance Method
Sinking Fund Method
Insurance Policy Method
Sums of the digit Method
Revaluation Method
Depletion Method
Machine Hour Rate Method
Replacement Method

CHANGES IN DEPRECIATION
METHOD

Change in method of Depreciation is done in the

following conditions:
For compliance of status
For compliance of ASs
For more appropriate presentation of the financial
statement

The Dep method used, the total dep for the period,
gross amt of dep of each class has to be disclosed in
the Fin. Statements.
If the asset is revalued , the prov for dep is based on
the revalued amount.
A change in method of depreciation is treated as
change in an accounting policy.
Accumulated Depreciation for each class of asset

DEPRICIABLE AMOUNT
Depreciable Amt= Historical Cost- ERV
E.g: Cost of asset=500000, ERV=25000

Depreciable Amt = H.C ERV

=500000-25000
= 475000.
Depreciable amount is allocated over the estimated
useful life of depreciable asset.

DEPRECIATION ON ADDITION/
EXTENSION

Any addition or extension becomes an integral part of

the existing asset. Hence it is depreciated over the
remaining useful lifeof the asset.
Depreciation on Items Below Rs 5000/ Sch 6 of Cos Act 1956, individual items of fixed assets
below Rs 5000 should be depreciated @ 100%.

OTHER POINTS OF AS 6
When the dep asset is disposed off,discarded,
demolished,destroyed; the net surplus or defecit is
charged to P/L A/C.
The useful life of a depreciable asset shld be estimated
after considering factors like wear & tear, obsolescence
etc.
The useful life of major depreciable assets may be
periodically reviewed.