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ACCOUNTING STANDARDS
The statements of code of practice of the regulatory accounting bodies that are to be observed in the preparation and presentation of financial statements. The Institute Of Chartered Accountants Of India
DEPRECIABLE ASSET
Are expected to be used
USEFUL LIFE
The period over which a
IFRS VS GAAP
IAS 16 of IFRS mandates review of useful life, residual
value and depreciation method at each year end while AS 6 does not specify any such requirement.
If an intangible asset is acquired in a business combination, the cost is the fair value at the acquisition date. The intangible
DEPRECIATION
CAUSES
NEED
FACTORS
Total cost of the asset. Estimated useful life of the asset. Estimated scrap value. Chances to obsolescence. Addition to assets. Legal provision.
For determination of net By contrast profit or net loss. By expiry of time For showing asset at fair By obsolescence and true value in the By depletion balance sheet. Permanent fall in price Provision of funds for By abnormal factors replacement of assets. Ascertaining accurate cost of production. Distribution of dividend out of profit only.
CAUSES
INTERNAL CAUSES:
Wear and tear
Depletion
EXTERNAL CAUSES:
Obsolescence Passage of time
ACCIDENT
NEEDS
Determination of net profit or net loss.
Showing assets at fair and true value in the balance
sheet.
Provision of funds for replacement of assets. Ascertaining accurate cost of production.
FACTORS IN DETERMINATION OF DEPRECIATIONand installation Original cost of fixed asset i.e., purchase price plus freight
expenses. Estimated amount of expenditure on repairs during the useful life.
METHODS OF DEPRECIATION
1. Straight Line 2. Written Down Value 3. Sum Of Years Digits 4. Units of Production
produced, and it will be very low when only a few units are
produced.
Depreciation
This method allows for more depreciation during busy period and vice versa
Except in rare cases, it is difficult to apply this method as total
BASIC CHARACTERTICS
Asset account continues to appear at its original cost year after
being adjusted in the asset account at the end of each accounting period.
JOURNAL ENTRIES
1. For recording purchase of asset
Asset A/c
Dr
To Bank/Vendor A/c 2. Following two journal entries are recorded at the end of each year:
a) For crediting depreciation amount to provision for depreciation
account
Depreciation A/c
Dr
Dr
To Depreciation A/c
01 2002, and spent Rs. 50,000 for its installation. The salvage value
of the plant after its useful life of 10 years is estimated to be Rs. 10,000. Record journal entries for the year 2002-03 and draw up
Plant Account and Depreciation Account for first three years given
that the depreciation is charged using straight line method if: (i) The books of account close on March 31 every year; and
Date
Plant A/c Dr. To Bank A/c (Purchased plant forRs.5,00,000) Plant A/c Dr. To Bank A/c (Expenses incurred on installation) Depreciation A/c Dr. To Plant A/c (Depreciation charged on asset) Profit and Loss A/c Dr. To Depreciation A/c (Depreciation debited to profit and loss account)
5,00,000
Plant Account
Date Particulars
J. F.
Particulars
J . F .
Amount Rs.
2002 Apr. 01
BANK
DEPRECIATION
54,000
BANK(installation expenses)
50,000
5,50,000
BALANCE c/d
4,96,000
5,50,000
2003 apr1
BALANCE b/d
4,96,000
2004 MAR 31
DEPRECIATION
BALANCE c/d
54,000
4,42,000 4,96,000
4,96,000
2004 Apr 1
BALANCE b/d
4,42,000
DEPRECIATION ACCOUNT
DATE
PARTICULAR S
J.F.
AMOUNT Rs.
DATE
J.F.
AMOUNT Rs.
Plant
54,000
54,000
Plant
54,000
54,000
DISPOSAL OF ASSET
Disposal of asset can take place either
JOURNAL ENTRIES
1. For sale of asset as scrap Bank A/c Dr. To Asset A/c 2. For transfer of balance in asset account (a) In case of profit Asset A/c Dr. To Profit and Loss A/c (b) In case of loss Profit and Loss A/c Dr. To Asset A/c
CONCLUSION
1. It applies to all depreciable assets, except the following items to
This standard also does not apply to land unless it has a limited useful life for the enterprise. 2. Different accounting policies for depreciation are adopted by
different enterprises.
Disclosure of accounting policies for depreciation followed by an enterprise is necessary to appreciate the view presented in the financial statements of the enterprise.