DEPRECIATION

It is reduction in the value of fixed asset with the passage of time. As an asset is used, its value decreases which is due to wear and tear of that asset. This amount is charged as an expense and represents the benefit use during the period.Depreciation is a non cash expense. This decrease in value of asset is called depreciable value.


DEPRECIABLE VALUE:
Cost/ revalued amount of asset – residual value


RESIDUAL VALUE:
Scrape value of an asset at the end of its useful life. It is also known as N.R.V. (Net Realizable Value)
DOUBLE ENTRY:
Dr  Depreciation a/c
Cr  Provision for depreciation a/c


METHODS OF DEPRECIATION:
There are two methods of depreciation.
1. Straight Line Method
2. Reducing Balance Method


STRAIGTH LINE METHOD:
This is a method according to which a constant amount of depreciation is charged over the useful life of an asset.
It is calculated as follow:
Annual Charge=Cost – residual value /expected useful life


REDUCING BALANCE METHOD:
This is a method according to which the annual charge decreases over assets useful life there is a percentage given to charge depreciation.
It is calculated as follow:
Net book value = (Cost –Accumulated depreciation) * % of charge