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Accounting Standard 6
Learning Objectives
► Understand the concept of
depreciation
► Identify the causes of depreciation
► Compute depreciation as per various
methods of providing depreciation
► Appreciate the role of a proper
depreciation policy
► Understand salient feature of AS 6
Concept of Depreciation
► The concept of depreciation is closely linked
with the concept of business income.
► In revenue generation process long term assets
is used.
► At some point of time these assets becomes
useless and are disposed of and possibly
replaced.
► The assets get economically exhausted
►The economic potential so
consumed represents the expired
cost of these assets and must be
recovered from the revenue of the
business in order to determine the
income earned by the business.
Definition
► Depreciation is defined as that portion of
the cost of the assets that is deducted from
the revenue for assets services used in the
operation of a business.
► The Institute of Chartered Accountant of
England and Wales defines depreciation as
“that part of the cost of a fixed asset to its
owner which is not recoverable when the
asset is finally put out of use. Provision
► Against this loss of capital is an integral
cost of conducting the business during
the effective commercial life of the asset
and is not dependent upon the amount of
profit earned”.
Factors determining
Depreciation to be charged