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Double-Entry Bookkeeping
CBSE Class 11
Depreciation Part-1

KEY TERMS

● Non-current Assets

● Useful life

● Residual Value

● Depreciation

● Reasons of Depreciation

1.
 Non-current Assets

1. Non-current assets, commonly known as long-term assets

or fixed assets, include items presented on a company's
balance sheet that have a useful life extending beyond a
single accounting period (12 months) and are not intended
for immediate resale.

2. They are assets that a company holds for extended

periods, serving long-term purposes, and includes various
categories.

Useful Life

1. The useful life of an asset refers to the estimated duration

in which the asset is being utilised to provide economic
benefits to a business.

2. It signifies the period throughout which the asset is utilised

in the company’s operations and generates revenue.

3. The depreciation allocation assessment plays an

important role in determining how the cost of the asset
should be allocated through the depreciation process.

2.
 Residual Value

1. Residual value refers to the estimated value of a fixed

asset at the end of its useful life.

2. It can also be recognized as the salvage value or scrap

value.

3. Example: Let’s say that an asset is bought for Rs.11,000

with a useful life of 5 years. If at the end of its useful life,
we get Rs.1,000, that value is called the residual value.

Depreciation

1. Depreciation is the decrease in value of non-current

assets due to wear-and-tear, passage of time,
obsolescence, etc.,

2. It is used for allocating the cost of a tangible asset (Eg;

Building, machinery, equipment, etc.) or an intangible
asset (Eg; Goodwill, patents, copyrights, etc.) over its
estimated useful lifespan.

3.
 Reasons for depreciation

1. Wear-and-tear: Physical objects or assets are subject to

wear and tear. Over a certain period of time, the repetitive
use, friction, and other environmental factors can cause
the overall value of the asset to decrease.

2. Obsolescence: Factors such as technological

advancements and a change in the market preferences
may cause assets to be obsolete overtime.

3. Some other reasons include:

a. Economic factors
b. Market Demand
c. Usage
d. Physical Deterioration

4.