 Depreciation

 Meaning:-
Depreciation refers to reduction in the value of fixed Assets
due to its use wear & tear.

Depreciation = Original Cost- Scrap Value

Estimated Life

 Original Cost= Price of Assets + Installation/erection+

Transportation charges + carriage

 There are Two Methods to Calculate Depreciation :-

1) Fixed Installment Method /Original Cost Method /Straight Line Method:-

In this Method Depreciation Is Always charged at Price on which was Assets
Purchased. The amount of depreciation remain same for every year.

2) Reducing Balance Method/ Diminishing Balance Method/ Written Down

Value Method :-

Depreciation Charged every year on the value remains after deducting last year
depreciation

 Journal Entries

1) 1st Year :-
A) Purchase of Assets:-
Sundry Assets A/c --- Dr
To Cash /Bank Or Party A/c

B) Depreciation is Charged At year Ending:-

Depreciation A/c---- Dr
To Sundry Assets
 C) Depreciation Transferred To Profit & Loss A/c At The
Year Ending:-
Profit & Loss A/c ----Dr
To Depreciation A/c

2) 2nd Year:-

A) Depreciation is Charged At year Ending:-

Depreciation A/c---- Dr
To Sundry Assets
B) Depreciation Transferred To Profit & Loss A/c At The Year Ending:-
Profit & Loss A/c ----Dr
To Depreciation A/c

3) Sale Of Assets:-
Cash/Bank Or Party A/c--- Dr
To Sundry Assets A/c

A) If there Is Profit on sale of Assets:-

Sundry Assets A/c ---- Dr
To Profit & Loss A/c

B) If There is loss On Sale Of Assets:-

Profit & Loss A/c--- Dr
To Sundry Assets A/c

Journal Entries in the Books Of M/s. Singhania & Bros.

Date Particulars L/F Amt.(Dr) Amt. (Cr)

St
1 April Plant A/c--- Dr 550000
2017 To Bank A/c - 550000
( Being Plant Purchased &
Installation Charges Paid)
31st Depreciation A/c ---Dr 54000
March To Plant A/c - 54000
2018 ( Being Depreciation
 Charged
31st Profit & Loss A/c - 54000
March To Depreciation A/c 54000
2018 ( Being Depreciation
Transferred to P&L A/c at
year ending)
Total 658000 658000

Depreciation = Original Cost- scrap value

Estimated Life
= 550000-10000
10
= 540000
10
Depreciation = 54000 P.a.