DEPRECIATION

•Depreciation is the reduction in

the value of fixed assets due to
their use and with passage of time.
•Scrap value is given and if not
given generally it can be taken as
5% of the original cost.
 DEPRECIATION
•It may be defined as, “The permanent and
continuing decrease in the quality, quantity or
value of an asset due to the following reasons:
•Wear and tear
•Passage of time
•Obsolescence
•Exhaustion or
•Accident.
 DEPRECIATION
• Depreciation also has a second meaning: It is
used in accounting. It means, “as the
machines or other assets get old, it is the
practice of the accountant to reduce their
values in the books of accounts.
•The amount by which the value of assets is
reduced is known as the depreciation
(amount)
 DEPRECIATION
• For calculating depreciation, there are certain
methods. Generally, depreciation is expressed as
a percentage per annum. The basic factors useful
for calculating depreciation are:
1.Estimated life of an asset
2.Estimated scrap value at the end of that life,
and
3.The cost of the asset.
 DEPRECIATION
• Reasons for providing depreciation :-
1. Correct Valuation of assets in the
balance-sheet
2. Correct profit/loss figure in the P & L
account
3. Proper retention of funds for
replacement of assets.
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• Methods for calculating depreciation:
1.Fixed installment method, or straight line
method.
2.Reducing balance method, or written
down value method.
3.Sinking fund method
4.Annuity method
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• Methods for calculating depreciation:
5. Depletion method
6.Machine hour method
7.Sum of digits method
8.Insurance policy method
9.Revalution method
10.Labour hour rate method.