DEPRECIATION

Ravi Agarwal

Depreciation Defined
Depreciation is defined as reduction in the value of an asset due to wear and tear because of normal usage, efflux of time and technological obsolescence. It is called depletion in case of wasting assets, such as mine and oil well and amortization if the asset is intangible one.

Depreciation Methods
1. Straight line method (SLM) or Fixed Installment Method 2. Written Down Value (WDV) or Reducing Balance Method

Illustration
A machine was bought on 1st April 2007 at Rs.1,00,000. It is subject to depreciation at a rate of 20%. Calculate depreciation for three years on the basis of: a. SLM b. WDV

Illustration - 2
Continuing the previous illustration, if another machine is bought on 31st August 2008 at Rs.40,000. on 30th April 2009, the first machine was sold out at Rs.63,500. Prepare Machine Account for three years assuming WDV method.