Archive | Depreciation

Top 7 Methods for Charging Depreciation

This article throws light upon the top seven methods for charging depreciation on assets. The methods are: 1. Fixed Installment 2. Diminishing Balance Method 3. Annuity Method 4. Depreciation Fund Method 5. Insurance Policy Method 6. Revaluation Method 7. Depletion Method 8. Machine Hour Rate Method. Method # 1. Fixed Installment: This is the oldest […]

Treatment of Asset Disposal Account: 2 Heads

Here we detail about the two heads for treatments of asset disposal account. (A) When Depreciation is Charged to the Asset Account: In this case depreciation is charged to asset account and in the balance sheet, the asset is shown at its written down value (i.e., less of depreciation). When an asset is sold, the […]

Recording Depreciation in Books of Accounts: 2 Methods

Here we detail about the two methods for recording depreciation in the books of accounts, i.e, (A) Charging Depreciation to Asset Account (B) Creating Provision for Depreciation Account or Accumulated Depreciation Account. (A) Charging Depreciation to Asset Account (When Asset is Shown at Net Depreciated Value): Under this method, depreciation is charged to respective assets […]

Selection of a Depreciation Method

Let us make in-depth study of the three alternatives for selecting method of depreciation. Selection of method of depreciation is an important point because choice of method plays a vital role on the net income reported by any business enterprise. Selection of method of depreciation depends upon the type and shape of the enterprise, nature […]

Methods for Computation of Depreciation: 2 Methods

Read this article to learn about the two methods involved in computation of depreciation. (i) Straight Line Method and Written Down Value Method (WDVM). (ii) Diminishing/Reducing/ Written Down Value Methods. 1. Straight Line or Fixed Installment Method: This method is the simplest and most commonly used method of charging depreciation. Here, the amount of depreciation […]

Straight Line and Written Down Value Method of Depreciation | Differences

Here we detail about the difference between straight line and written down value method of depreciation. Straight Line Method: 1. Depreciation is calculated on original cost of the asset. 2. Amount of depreciation remains same during the useful life of the asset. 3. Book value of the asset can be reduced to zero or to […]

Depreciation: Characteristics, Causes and Factors Affecting Depreciation

Let us make in-depth study of the definitions, characteristics, causes and factors affecting depreciation. Definitions: “The permanent and continuing diminution in the quality, quantity or value of an asset.” -Pickles. “Depreciation may be defined as a measure of the exhaustion of the effective life of an asset from any cause during a given period.” -Spicer […]

Top 6 Principles For Charging Depreciation

Read this article to learn about the six important principle needed for charging depreciation in accounting. 1. Matching Cost with the Revenues: The basic aim of providing the depreciation is to apply the matching principle. The matching principle offsets the revenue generated in an accounting period against the cost of goods and services which have […]

Quick Notes on Depreciation

This article provides notes on the concept of depreciation in accounting. Concept: Apportionment of depreciable amount of depreciable asset and charging the same to revenue during the useful life of that asset is known as depreciation. Apart from other factors which distinguish an accrual base accounting from cash base accounting is the depreciation. If an […]

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