Management 1 (Organizational Behaviour/Finance & Accounting) | 18. Depreciation Accounting by Abraham | Learn Smarter
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18. Depreciation Accounting

Depreciation accounting is essential for accurately reflecting the value of fixed assets over time, addressing factors like wear and tear and obsolescence. It facilitates the matching of costs with revenues and aids in financial reporting and planning. Understanding various depreciation methods helps ensure effective asset management and compliance with accounting standards.

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Sections

  • 18

    Depreciation Accounting

    Depreciation accounting systematically allocates the cost of fixed assets over their useful lives, reflecting their diminishing value over time.

    Learning Practice

  • 18.1

    Meaning And Need For Depreciation

    Depreciation is the systematic allocation of an asset's cost over its useful life, essential for accurate financial reporting and decision-making.

    Learning Practice

  • 18.1.1

    What Is Depreciation?

    Depreciation is the systematic allocation of the cost of fixed assets over their useful lives due to value decline from usage, time, or obsolescence.

    Learning Practice

  • 18.1.2

    Why Is Depreciation Necessary?

    Depreciation is essential for accurately matching asset costs with revenue generation, determining true profit, and complying with accounting standards.

    Learning Practice

  • 18.2

    Causes Of Depreciation

    This section discusses the various causes of depreciation that affect tangible fixed assets over time.

    Learning Practice

  • 18.3

    Characteristics Of Depreciation

    Depreciation is a critical accounting process applied to tangible fixed assets, reflecting their diminishing value over time as a non-cash expense.

    Learning Practice

  • 18.4

    Factors Affecting Depreciation

    This section outlines the key factors that influence depreciation, highlighting their role in determining an asset's valuation over time.

    Learning Practice

  • 18.5

    Methods Of Depreciation

    This section outlines four primary methods of depreciation used in accounting: Straight Line, Written Down Value, Sum of Years’ Digits, and Units of Production methods.

    Learning Practice

  • 18.5.1

    Straight Line Method (Slm)

    The Straight Line Method (SLM) of depreciation allocates the cost of a fixed asset equally over its useful life.

    Learning Practice

  • 18.5.2

    Written Down Value (Wdv) Method

    The Written Down Value (WDV) Method calculates depreciation based on a fixed percentage of the asset's book value, leading to higher depreciation charges in early years.

    Learning Practice

  • 18.5.3

    Sum Of Years’ Digits Method

    The Sum of Years' Digits Method is an accelerated depreciation technique that allocates an asset's depreciation expense by focusing on the asset's remaining useful life.

    Learning Practice

  • 18.5.4

    Units Of Production Method

    The Units of Production Method calculates depreciation based on actual asset usage, allowing for a more accurate expense allocation compared to other methods.

    Learning Practice

  • 18.6

    Accounting Treatment Of Depreciation

    The Accounting Treatment of Depreciation involves key journal entries necessary for accurately reflecting the depreciation expense in financial records.

    Learning Practice

  • 18.6.1

    Journal Entries

    This section outlines the necessary journal entries for recording depreciation in accounting, highlighting two main methods.

    Learning Practice

  • 18.7

    Impact Of Depreciation On Financial Statements

    Depreciation affects financial statements by reducing net profit in the income statement and decreasing the value of assets on the balance sheet.

    Learning Practice

  • 18.8

    Provisions Vs Reserves

    This section distinguishes between provisions and reserves, outlining their purposes and impacts on financial statements.

    Learning Practice

  • 18.9

    Change In Method Of Depreciation

    This section discusses the circumstances under which a business may change its method of depreciation and the accounting standards governing such changes.

    Learning Practice

  • 18.10

    Depreciation Under Companies Act, 2013 (India)

    This section discusses the guidelines for calculating depreciation in accordance with the Companies Act, 2013 in India.

    Learning Practice

  • 18.11

    Depreciation In Income Tax

    The Income Tax Act allows for depreciation deductions using the Block of Assets method, with prescribed rates differing from financial accounting.

    Learning Practice

References

Chapter_18_Depre.pdf

Class Notes

Memorization

What we have learnt

  • Depreciation systematically...
  • Various methods exist to ca...
  • Depreciation impacts financ...

Final Test

Revision Tests