ACCOUNTING STANDARD 6

FESTUS . J
19-UBC-242
 DEPRECIATION
• AS – 6 deals with depreciation
• It focuses on measuring the cost and depreciable amount of
fixed asset , calculation and accounting treatment of annual
depreciation
• DEPRECIATION represents the decline in the value of fixed
asset due to wear and tear , usage , obsolescence , etc……….
 DEPRECIATION - DEFINITION

• AS – 6 , depreciation accounting defines depreciation as a measure of the

wearing out consumption or other loss of value of a depreciable asset
arising from use , effluxion of time or obsolescence throught technology or
market changes .
• Carter defines depreciation as “the gradual and permanent decrease in the
value of an asset from any cause”.
 NEED FOR PROVIDING DEPRECIATION

1. To ascertain correct profit / loss

2. To present a true and fair view of the financial position
3. To ascertain the real cost of production
4. To comply with legal requirements
5. To replace assets
 FEATURES & CAUSES OF DEPRECIATION

features :
• Depreciation is the part of operating cost

• It is a reduction in the value of asset

• The decrease in the value of asset is gradual and continuous

Causes:
• physical wear and tear

• Deterioration

• Expiry of legal rights

• obsolescence
 DEPRECIABLE ASSET

• Depreciable assets are those assets which :

• Are expected to be used for more than 1 accounting period
• Have a limited useful life
• Are held for the purpose of production of good & services
 AS – 6 APPLICABILITY

• Deals with depreciation accounting and applies to all depreciable assets

except :
• Forest, plantations & natural resources
• Wasting assets
• Expenditure on R & D
• Goodwill & other intangible assets
• Live stocks
 FACTORS DETERMINING THE AMOUNT OF
DEPRECIATION

1. Original cost of the asset : It implies the cost incurred on its

acquisition, installation, commissioning and for additions or
improvements thereof which are of capital nature
2. Estimated life : It implies the period over which an asset is expected to
be used.
3. Residual value : It implies the value expected to be realised on its sale
on the expiry of its useful life. This is otherwise known as scrap value
 METHODS OF DEPRECIATION

1. Straight line method

2. Reducing balance method

3. Sinking fund method

4. Insurance policy method
5. Sums of the digit method
6. Revaluation method
7. Depletion method
8. Machine hour rate method
9. Replacement method
 DEPRECIATION ON ADDITION &
EXTENSION
• Any addition or extension becomes a intergral part of the existing asset .
Hence it is depreciated over the remaining useful life of the asset
• Depreciation on the item below ₹5000/-
• Schedule 2 of company act 2013, individual items of fixed assets below
₹5000 . There is no such concept
 OTHER POINTS OF AS-6

• When the depreciable asset is disposed off , discarded , demolished ,

destroyed; the net surplus or deficit is charged to P/L Account.
• The useful life of the depreciable asset should be estimated after
considering factors like wear and tear , obsolescence etc…..
• The useful life of the major depreciable assets may be periodically
reviewed
THANK YOU