1. Depreciation, its methods Straight line and reducing balance, Complete Insight Analysis

In this post, I am going to discuss Depreciation, Methods of Depreciation, Straight Line/ Original Cost/Fixed Instalment Method, Diminishing/Declining/Reducing Balance Method, Reasons of depreciation, Important Journal entries, theoretical aspects & Example short and extensive questions for understanding with Important MCQ’s of Depreciation

Depreciation

Depreciation is the wear and tear value of physical or tangible fixed assets such as machinery, plant, vehicle, etc.; due to deterioration over the period of time. There are different depreciation methods such as original cost or declining balance method etc.

Reasons of Depreciation

Wear & Tear: Assets deteriorate due to continuous usage.
Time Laps: Some types of assets become useless after some time.
Obsolescence: Due to new technology, old technology is discarded.

Methods of Depreciation

Straight Line/ Original Cost/Fixed Instalment Method

In Fixed installment method of depreciation, depreciation is calculated each time on the original cost of the asset.

Diminishing/Declining/Reducing Balance Method

Under the reducing, declining, or diminishing method, depreciation is charged each time on the balance or book value of the asset.

Characteristics of Depreciation

Only Charged on Non-Current Assets
Depreciation should not exceed than cost of the asset
It must be calculated on the cost of the asset

Internal & External Causes of Depreciation

Internal causes of depreciation

Wear & Tear
Exhaustion
Depletion
Deterioration

External causes of depreciation

Time
Obsolescence
Weather & natural Calamities
Fall in the market Value

Scrap/Residual Value

Scrap Value, Residual Value, Salvage Value, or Break-up Value is the estimated selling price value of the scrap asset after charging full depreciation.

Difference between Tangible and intangible Asset

Tangible Assets

Tangible assets are assets that are physical and can be touched such as buildings, machinery, furniture, etc.

Intangible Assets

Intangible assets are assets that are non-physical such as Goodwill, Patents, trademarks, Software, etc.

Amortization

Amortization is the cost of intangible assets over a period of time besides this it is used to repayment of loan over a period of time.

Difference among Depletion, Depreciation, and Obsolescence

Depletion

Depletion is just like the depreciation of natural resources such as timber, mining and petroleum industries, etc.

Depreciation

Depreciation is the wear and tear value of physical or tangible fixed assets due to deterioration over a period of time. There are various depreciation methods such as original cost or declining balance method etc.

Obsolescence

When an asset becomes obsolete or outdated and useless, this state is called obsolescence.

Wear and tear in depreciation

Physical deterioration of physical assets due to usage over a period of time is called wear and tear.

Accumulated Depreciation

Accumulated depreciation is the total amount of depreciation that has been charged against an asset since the asset was first acquired.

Obsolescence

When an asset becomes obsolete or outdated and useless, this state is called obsolescence.

Fluctuation

The increase or decrease in the market value of an asset due to market forces is called fluctuation.

Wasting asset

A wasting asset is an asset that has a limited life and its value declines as time passes such as depreciation in machinery, motor car, etc.

Difference between Deprecation and Fluctuation in market price

Depreciation is the wear and tear value of physical or tangible assets due to deterioration over a period of time. There are various depreciation methods such as original cost or declining balance method etc.

The rise and fall in the value of fixed assets due to market reasons is called fluctuation in market price.

Formula for Straight-line Depreciation

$\mathbf{Depreciation =}\frac{\mathbf{Cost - Scrap\ Value}}{\mathbf{Estimated\ Life\ of\ asset}}\$

Important Journal Entries for Depreciation

When asset is acquired

*Date*	*Detail*	*Dr.*	*Cr.*
*XXXX*	Asset Dr.	XXX	XXX
	Cash/Bank Cr.

Cost of installing asset if any.

*Date*	*Detail*	*Dr.*	*Cr.*
*XXXX*	Asset Dr.	XXX	XXX
	Cash/Bank Cr.

Depreciation Entry

*Date*	*Detail*	*Dr.*	*Cr.*
*XXXX*	Depreciation Dr.	XXX	XXX
	Asset Cr.

Selling Asset

*Date*	*Detail*	*Dr.*	*Cr.*
*XXXX*	Cash/Bank Dr.	XXX	XXX
	Asset Cr.

Journal Entry for Profit

*Date*	*Detail*	*Dr.*	*Cr.*
*XXXX*	Asset Dr.	XXX	XXX
	Profit & Loss Cr.

Journal Entry for Loss

*Date*	*Detail*	*Dr.*	*Cr.*
*XXXX*	Profit & Loss Dr.	XXX	XXX
	Asset Cr.

Short Numerical Questions

Example Short Question 1 for Understanding

Under the “straight line method”, what is the annual rate of depreciation if, the cost price of an asset is Rs.2500, scrap value Rs.500 and life is 5 years.

Answer:

Data: Cost = 2500, Scrap Value = 500, Estimated Life = 5 Years

$Depreciation = \frac{Cost - Scrap\ Value}{Estimated\ Life} = \frac{2500 - 500}{5} = 400\$

$Rate\ of\ Depreciation = \frac{Annual\ Depreciation}{Cost - Scrap\ Value}\ \times 100\$

$Rate\ of\ Depreciation = \frac{400}{2500 - 500}\ \times 100 = 20\%\$

Example Short Question 2 for Understanding

On 1^st January 2010, a firm purchased machinery worth Rs. 20,000 and spent Rs. 2,000 on its installation, the rate of depreciation is 10% p.a. then what will be the book value of asset under the written down value method after three years?

Solution:

Cost (C) = 22,000, Depreciation Rate (r) = 10%, Time Period (n) = 3 Years

Method = Written Down Value Method

Formula

$Book\ Value = C\ (1 - r)^{n}\$

$Book\ Value = 22,000\ (1 - 0.10)^{3}\$

$Book\ Value = 16038\$

Extensive Numerical Questions

Extensive Question 1 for Understanding

On 1st July 2002, Ali purchased a second hand machine for Rs. 18000 and spent Rs.2000 on its repair and installation. On 30^th June 2005 the machinery was disposed of for a sum of Rs. 13,600. Assuming the books are closed on 31^st December each year and taking the rate of depreciation at 10% p.a. on diminishing balance.

Required: Show the machinery account of all years.

Solution:

Machine Account

(20,000 \times \frac{10}{100} \times \frac{6}{12})\ — **Machine Account**

19,000 \times (\frac{10}{100})\ — **Machine Account**

W:1 Calculation of Profit or Loss

Cost	20,000
Less Depreciation for 2002	(1,000)
Less Depreciation for 2003	(1900)
Less Depreciation for 2004	(1710)
Less Depreciation for 2005	(769.5)
Book Value at the time of Sale	14620.5
Selling Price Realized	(13,600)
Loss	1020.5

Calculation of Profit & Loss

Extensive Question 2 for Understanding

A manufacturing firm purchased on 1^st of January, 2001 certain Machinery for Rs. 100,000 and spent Rs.2,000 on its erection. On 1^st of July in the same year additional machinery costing Rs.50,000 was acquired. On 1^st of January, 2003 the machinery purchased on 1^st of January, 2001 having become obsolete was auctioned for Rs.40,000 and on the same date fresh machinery was purchased at a cost of Rs.25,000. Depreciation was provided annually on 31^st December at the rate of 10% p.a. on the original cost of the asset. In 2003 however, this method was changed and that of writing off 15% on the written down value was adopted. Required: Give Machinery Account from 2001 to 2005.

Solution:

Machinery Account

(102,000 \times \frac{10}{100})\ — **Machinery Account**

(50,000 \times \frac{10}{100} \times \frac{6}{12})\ — **Machinery Account**

W:1 Calculation of Profit or Loss for 1^st Machinery

Cost	102,000
Less Depreciation for 2001	(10200)
Less Depreciation for 2002	(10200)
Less Depreciation for 2003	(0)
Book Value at the time of Sale	81,600
Selling Price Realized	(40,000)
Loss	41,600

Calculation of Profit & Loss

Extensive Question 3 for Understanding

On 1^st January 2002 a firm purchased a truck for Rs. 15000. Deprecation is charged @ 20% p.a. on the written down value method. On 31^st December 2005 it was arranged to replace the old Truck with a new one cost Rs. 18000 and an allowance of Rs. 4500 being made from the purchase price of new one.

Required

Show the truck Account for four years.

Solution:

Truck Account

(15000 \times \frac{20}{100})\ — **Truck Account**

(12000 \times \frac{20}{100})\ — **Truck Account**

W:1 Calculation of Profit or Loss for replacing old truck
Cost	15,000
Less Depreciation for 2002	(3,000)
Less Depreciation for 2003	(2400)
Less Depreciation for 2004	(1920)
Less Depreciation for 2005	(1536)
Book Value	6144
Less Allowance	(4500)
Loss on Replacing Old Truck	1644

Calculation of Profit & Loss

Extensive Question 4 for Understanding

Reproduce and complete the following table on your answer book

	Cost (Rs.)	Scrap Value (Rs.)	Annual Depreciation under fixed Installment Method Rs.	Life (Years
I	8000	200	?	10
II	?	500	800	12
III	5300	?	1000	5
IV	6000	400	700	?
V	3000	Nil	?	15

Solution:

Working 1

$\mathbf{Depreciation =}\frac{\mathbf{Cost - Scrap\ Value}}{\mathbf{Estimated\ Life}}\mathbf{=}\frac{\mathbf{8000 - 200}}{\mathbf{10}}\mathbf{= 780}\$

Working 2

$\mathbf{Depreciation =}\frac{\mathbf{Cost - Scrap\ Value}}{\mathbf{Estimated\ Life}}\$

${800 =}\frac{\mathbf{Cost - 500}}{\mathbf{12}}\$

800 x 12 = Cost – 500

9600 = Cost – 500

Cost = 9600 + 500 = 10100

Working 3

$\mathbf{Depreciation =}\frac{\mathbf{Cost - Scrap\ Value}}{\mathbf{Estimated\ Life}}\$

$\mathbf{1000 =}\frac{\mathbf{5300 - Scrap\ Value}}{\mathbf{5}}\$

$\mathbf{1000 \times 5 = 5300 - scrap\ value}\$

$\mathbf{5000 - 5300 = - scrap\ value}\$

$\mathbf{scrap\ value = 300}\$

Working 4

$\mathbf{Depreciation =}\frac{\mathbf{Cost - Scrap\ Value}}{\mathbf{Estimated\ Life}}\$

$\mathbf{700 =}\frac{\mathbf{6000 - 400}}{\mathbf{Estimated\ Life}}\$

$\mathbf{Estimated\ Life \times 700 = 5600}\$

$\mathbf{Estimated\ Life =}\frac{\mathbf{5600}}{\mathbf{700}}\mathbf{= 8}\$

Working 5

$\mathbf{Depreciation =}\frac{\mathbf{Cost - Scrap\ Value}}{\mathbf{Estimated\ Life}}\mathbf{=}\frac{\mathbf{3000 - 0}}{\mathbf{15}}\mathbf{= 200}\$

Reproduction of Table

	Cost (Rs.)	Scrap Value (Rs.)	Annual Depreciation under fixed Installment Method Rs.	Life (Years
I	8000	200	780 W.1	10
II	10100 W.2	500	800	12
III	5300	300 W.3	1000	5
IV	6000	400	700	8 W.4
V	3000	Nil	200 W.5	15

Reproduction of Table After Working

Extensive Question 5 for Understanding

ABC Company purchased machinery for Rs. 70,000, on 1st July, 2002. They spent Rs. 8,000 on its installation. Prepare the machinery account for the first four years under straight line method of depreciation. Depreciation is written off @ 10% per annum. Assume the Accounts are closed every year on 31st December.

Solution:

Machinery Account

(78000\times\frac{10}{100}\times\frac{6}{12})\ — **Machinery Account**

(78000\times\frac{10}{100})\ — **Machinery Account**

Extensive Question 6 for Understanding

On 1^st January 2001 a firm purchased machinery worth of Rs. 50,000/-. On 1^st July 2003 it buys additional machinery worth Rs. 10,000/- and spends Rs. 1,000/- on its erection. The accounts are closed each year on 31^st Dec. Assuming the normal depreciation to be 10% per annum, show the machinery account for four years under fixed installment method.

Solution:

Machinery Account

(50000\times\frac{10}{100})\ — **Machinery Account**

Extensive Question 7 for Understanding

A transport company purchased 10 motor trucks at Rs. 90,000 each, on 1st April 2002. On 1st October 2004 one of the truck got an accident and was completely destroyed. Rs. 54000 are received from the insurer in full settlement. On the same day another truck was purchased for the sum of Rs. 100,000. The company wrote off depreciation @ 20% on the original cost per annum and observed the calendar year as its financial year. Give the motor truck account from 2002 to 2004.

Solution:

Trucks Account

(900,000\times\frac{20}{100}\times\frac{9}{12})\ — **Trucks Account**

(900,000\times\frac{20}{100})\ — **Trucks Account**

W:1 Calculation of Profit or Loss for Destroyed Truck

(90000\times\frac{20}{100}\times\frac{9}{12})\ — **Calculation of Profit or Loss**

(90000\times\frac{20}{100})\ — **Calculation of Profit or Loss**

Important MCQ’s of Depreciation

1	What is depreciation?
	A. An expense	B. A liability
	C. A revenue	D. A profit
2	What is the decline in the value of an asset proportionate to the quantum of its production e.g. mine, quarry etc. called?
	A. Amortization	B. Depletion
	C. Depreciation	D. Wear and tear
3	Depreciation is recorded On the:
	A. Debit side of Trading Account	B. Credit side of Trading Account
	C. Debit side of profit and loss Account	D. Credit side of profit and loss Account
4	In fixed installment method, depreciation is calculated on:
	A. Book value	B. Market price
	C. Scrap value	D. Original cost
5	If original cost of asset is 45,000, Scrap value is Rs. 3000, estimated life is 7 years then the annual value of depreciation will be.
	A. Rs. 6000	B. Rs. 7000
	C. Rs. 6500	D. Rs. 8000
6	The value of an asset at the end of working life is called_____.
	A. Original cost	B. Book value
	C. Scrap value	D. Market value
7	The term depreciation is used with reference to_____.
	A. Tangible assets	B. Intangible assets
	C. Current assets	D.Fixed assets
8	Depreciation arises because of______.
	A. Fall in the market value of an asset	B. Physical wear and tear
	C. Fall 1n the value of money	D. Increase in the value of money
9	Under straight line method, the amount of depreciation is _______.
	A. Decreases every year	B. Increases every year
	C. Both A and B	D. Constant every year
10	Reducing Balance method is also known as _____.
	A. Diminishing Balance Method	B. Written down value Method
	C. Book value Method	D. All of these
11	If original cost of the asset is Rs. 10,000/- rate of depreciation is 10%, then value of depreciation under diminishing balance method after 3^rd year will be _____.
	A. Rs. 1000/-	B. Rs. 900/-
	C. Rs. 700/-	D. Rs 810/-
12	Loss on the sale of machinery should be written off against____________.
	A. Share premium Account	B. Sales Account
	C. Depreciation Fund Account	D. Scrap Account
13	Depreciation arises because of:
	A. Fall 1n the market value of an asset	B. Damage during work
	C. Physical wear and tear	D. Fall in the market value of money
14	The value of asset after its useful life is called:
	A.Replacement value	B. Resale value
	C. Residual value	D. Market value
15	Depreciation is charged against _____.
	A. Expense	B. Revenue
	C. Liability	D. Capital
16	Depreciation occurs ______.
	A. Up to one year	B. Up to two years
	C. Till the last day of the estimated life of asset	D. Up to the replacement of old asset
17	Depreciation
	A. Reduces productive activity	B. Reduces value of asset gradually
	C. Is a regular loss	D. All of these
18	Suppose cost of asset is Rs. 1,000/- and rate of depreciation 10% p.a. The book value of asset after two years will be ______
	A. Rs.1000	B. Rs. 810
	C. Rs.900	D. Rs. 729
19	Depreciation on the diminishing balance method of Rs. 2000 at the rate of 10% p.a after three years will be:
	A. Rs. 1400	B. Rs. 1458
	C. Rs. 542	D. None of these
20	Depreciation of an asset should not exceed the:
	A. Original cost	B. Depreciable value
	C. Market price	D. Scrap value
21	The period during which the asset will help in earning income of business is known as:
	A. Consumed life	B. Expired life
	C. Exhausted life	D. Working life
22	A firm bought a machine for Rs. 16000. It is expected to be used for five years then sold for Rs. 1000. What will be the annual amount of depreciation under straight line method?
	A. Rs. 3200	B. Rs. 3100
	C. Rs. 3750	D. Rs. 3000
23	Decline in the value proportionate to the quantum of production, e.g. mine, quarry, etc. is called:
	A. Amortization	B. Depletion
	C. Depreciation	D. Wear and tear
24	The physical deterioration in assets due to use in business is called:
	A. Depletion	B. Obsolescence
	C. Wear and tear	D. Accident
25	Which one of the following is a tangible asset?
	A. Goodwill	B. Trademark
	C. Copyright	D. Machinery
26	The book value of machinery on January 01^st 2003 is Rs.20,000/-. Two years later, the book value is Rs.10,000/-. The straight line depreciation rate of charge each year is:
	A. 7.5%	B. 17.5%
	C. 25%	D. 33.5%
27	The value of Assets may rise or fall on account of:
	A. Depreciation	B. Depletion
	C. Fluctuation	D. Amortization
28	In straight line method, depreciation is calculated on:
	A. Book value	B. Market value
	C. Scrap value	D. Original cost
29	Original cost of machinery Rs. 5,500, scrap value Rs. 500, the useful life of machinery 10 years, then the annual value of deprecation will be:
	A. Rs. 500	B. Rs. 550
	C. Rs. 1000	D. Rs. 1500
30	Amount which will be realized at the end of asset’s useful life, is called:
	A. Written down value	B. Market value
	C. Remaining value	D. Residual value
31	The process of allocating the cost of an intangible asset over its useful life, is called:
	A. Depreciation	B. Amortization
	C. Obsolescence	D. Deterioration
32	Book value of an asset is equal to:
	A. Cost – Depreciation	B. Cost – Salvage value
	C. Market value – Depreciation	D. Net realizable value – Depreciation
33	Which of the following is not a depreciable asset?
	A. Equipment	B. Machinery
	C. Land	D. Motor car
34	Depreciation arises because of:
	A. Fall in the market value of an asset.	B. Physical wear and tear
	C. Fall in the value of money	D. Increase in the value of money
35	The decreases in the value of intangible asset is known as:
	A. Amortization	B. Depreciation
	C. Appreciation	D. Depletion
36	The need for provision of depreciation is necessary to:
	A. Ascertainment of true profit or loss	B. Ascertainment of true cost of production
	C. Replacement of assets	D. All of these
37	The need for provision of depreciation is necessary to:
	A. Ascertainment of true profit or loss	B. Ascertainment of true cost of production
	C. Replacement of assets	D. All of these
38	Depreciation occurs:
	A. Up to one year	B. Up to two years
	C. Till the last day of the estimated working life of asset	D. Up to the replacement of old asset
39	Original cost of asset is Rs. 45000, Scrap value is Rs. 3000, useful life of asset is 7 years, then the annual value of depreciation will be:
	A. Rs. 6000	B. Rs. 7000
	C. Rs. 6500	D. Rs. 8000
40	The Amount of depreciation charged on machinery will be debited to:
	A. Machinery account	B. Cash account
	C. Depreciation Account	D. Trading Account

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Date	Detail	Rs.	Date	Detail	Rs.
1^st Jul, 2002	Cash A/C	18,000	31^st Dec, 2002	Depreciation A/C	1,000
1^st Jul, 2002	Cash A/C	2,000		$(20,000 \times \frac{10}{100} \times \frac{6}{12})\$
			31^st Dec, 2002	Balance c/d	19,000
		20,000			20,000

1^st Jan 2003	Balance b/d	19,000	31^st Dec, 2003	Depreciation A/C	1,900
				$19,000 \times (\frac{10}{100})\$
			31^st Dec, 2003	Balance c/d	17,100
		19,000			19,000

1^st Jan 2004	Balance b/d	17,100	31^st Dec, 2004	Depreciation A/C	1,710
				$17,100 \times (\frac{10}{100})\$
			31^st Dec, 2004	Balance c/d	1,5390
		17,100			17,100

1^st Jan 2005	Balance b/d	1,5390	30^th Jun, 2005	Depreciation A/C	769.5
				$(15390 \times \frac{10}{100} \times \frac{6}{12})\$
			30^th Jun, 2005	Cash A/C	13,600
			30^th Jun, 2005	P&L A/C (Loss) W:1	1020.5
		1,5390			1,5390

Date	Detail	Rs.	Date	Detail	Rs.
1^st Jan, 2001	Cash A/C	100,000	31^st Dec, 2001	Depreciation A/C 1^st Mach.	10,200
1^st Jan, 2001	Cash A/C	2,000		$(102,000 \times \frac{10}{100})\$
1^st Jan, 2001	Cash A/C	50,000	31^st Dec, 2001	Depreciation A/C 2^nd Mach.	2,500
				$(50,000 \times \frac{10}{100} \times \frac{6}{12})\$
			31^st Dec, 2001	Balance c/d	139,300
		152,000			152,000

1^st Jan 2002	Balance b/d	139,300	31^st Dec, 2002	Depreciation A/C 1^st Mach.	10,200
				$(102,000 \times \frac{10}{100})\$
				Depreciation A/C 2^nd Mach.	5,000
				$(50,000 \times \frac{10}{100})\$
			31^st Dec, 2002	Balance c/d	124,100
		139,300			139,300

1^st Jan 2003	Balance b/d	124,100	1^st Jan 2003	Cash A/C	40,000
1^st Jan 2003	Cash A/C	25,000		(Note: No Dep. for 1^st Mach.)
			1^st Jan 2003	P&L A/C (Loss 1^st Mach.) W:1	41,600
			31^st Dec, 2003	Depreciation A/C 2^nd Mach.	6375
				$(50,000 - 2500 - 5000 \times \frac{15}{100})\$
			31^st Dec, 2003	Depreciation A/C 3^rd Mach.	3750
				$(25,000 \times \frac{15}{100})\$

			31^st Dec, 2003	Balance c/d	57,375
		149,100			149,100

1^st Jan 2004	Balance b/d	57,375	31^st Dec, 2004	Depreciation A/C 2^nd & 3^rd Mach.	8606.25
				$(57375 \times \frac{15}{100})\$
			31^st Dec, 2004	Balance c/d	48768.75

		57,375			57,375

1^st Jan 2005	Balance b/d	48768.75	31^st Dec, 2005	Depreciation A/C 2^nd & 3^rd Mach.	7315.3125
				$(48768.75 \times \frac{15}{100})\$
			31^st Dec, 2005	Balance c/d	41453.4375
		48768.75			48768.75

Date	Particulars	Rs.	Date	Particulars	Rs.
2002			2002
1^st Jan	Cash A/C	15,000	31^st Dec	Depreciation A/C	3,000
				$(15000 \times \frac{20}{100})\$
			31^st Dec	Balance c/d	12,000
		15,000			15,000

2003			2003
1^st Jan	Balance b/d	12,000	31^st Dec	Depreciation A/C	2400
				$(12000 \times \frac{20}{100})\$
			31^st Dec	Balance c/d	9600
		12,000			12,000
2004			2004
1^st Jan	Balance b/d	9600	31^st Dec	Depreciation A/C	1920
				$(9600 \times \frac{20}{100})\$
			31^st Dec	Balance c/d	7680
		9600			9600
2005			2005
1^st Jan	Balance b/d	7680	31^st Dec	Depreciation A/C	1536
31^st Dec	Cash A/C	13,500		$(7680 \times \frac{20}{100})\$
	(18000 – 4500)		31^st Dec	Profit & Loss A/C (Loss) W:1	1644
			31^st Dec	Balance c/d	18,000

		21180			21180

Date	Detail	Rs.	Date	Detail	Rs.
1^st Jul, 2002	Cash A/C	70,000	31^st Dec, 2002	Depreciation A/C	3900
1^st Jul, 2002	Cash A/C	8,000		$(78000\times\frac{10}{100}\times\frac{6}{12})\$
			31^st Dec, 2002	Balance c/d	74,100
		78,000			78,000

1^st Jan, 2003	Balance b/d	74,100	31^st Dec, 2003	Depreciation A/C	7800
				$(78000\times\frac{10}{100})\$
			31^st Dec, 2003	Balance c/d	66,300

		74,100			74,100

1^st Jan, 2004	Balance b/d	66,300	31^st Dec, 2004	Depreciation A/C	7800
				$(78000\times\frac{10}{100})\$
			31^st Dec, 2004	Balance c/d	58,500

		66,300			66,300

1^st Jan, 2005	Balance b/d	58,500	31^st Dec, 2005	Depreciation A/C	7800
				$(78000\times\frac{10}{100})\$
			31^st Dec, 2005	Balance c/d	50,700

		58,500			58,500

Date	Detail	Rs.	Date	Detail	Rs.
1^st Jan, 2001	Cash A/C	50,000	31^st Dec, 2001	Depreciation A/C	5000
				$(50000\times\frac{10}{100})\$
			31^st Dec, 2001	Balance c/d	45,000
		50,000			50,000

1^st Jan, 2002	Balance b/d	45,000	31^st Dec, 2002	Depreciation A/C	5000
				$(50000\times\frac{10}{100})\$
			31^st Dec, 2002	Balance c/d	40,000

		45,000			45,000

1^st Jan, 2003	Balance b/d	40,000	31^st Dec, 2003	Depreciation A/C	5000
1^st Jul, 2003	Cash A/C	10,000		$(50000\times\frac{10}{100})\$
1^st Jul, 2003	Cash A/C	1000	31^st Dec, 2003	Depreciation A/C	550
				$(11000\times\frac{10}{100}\times\frac{6}{12})\$
			31^st Dec, 2003	Balance c/d	45,450

		51,000			51,000

1^st Jan, 2004	Balance b/d	45,450	31^st Dec, 2004	Depreciation A/C	5000
				$(50000\times\frac{10}{100})\$

			31^st Dec, 2004	Depreciation A/C	11,00
				$(11000\times\frac{10}{100})\$

			31^st Dec, 2004	Balance c/d	39,350
		45,450			45,450

1. Depreciation, Reasons of Depreciation, Methods of Depreciation, Straight Line/ Original Cost/Fixed Instalment Method, Diminishing/Declining/Reducing Balance Method.

Table of Contents

Depreciation

Reasons of Depreciation

Methods of Depreciation

Straight Line/ Original Cost/Fixed Instalment Method

Diminishing/Declining/Reducing Balance Method

Characteristics of Depreciation

Internal & External Causes of Depreciation

Scrap/Residual Value

Difference between Tangible and intangible Asset

Amortization

Difference among Depletion, Depreciation, and Obsolescence

Wear and tear in depreciation

Accumulated Depreciation

Obsolescence

Fluctuation

Wasting asset

Difference between Deprecation and Fluctuation in market price

Formula for Straight-line Depreciation

Important Journal Entries for Depreciation

Short Numerical Questions

Example Short Question 1 for Understanding

Example Short Question 2 for Understanding