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Depreciation INVESTIGATORY PROJECT

Depreciation is the process by which a company allocates the cost of an asset over its useful life through recording depreciation expenses on financial statements. This spreads the initial cost of the asset over its lifetime. For intangible assets like brands and intellectual property, the process is called amortization, and for natural resources it is called depletion. Depreciation estimates the decrease in an asset's value over time based on its useful life and is used for taxation purposes like property tax. The objective of the study is to understand how depreciation is calculated and used to ascertain true profits and show asset values properly over time. Secondary sources like the internet, books, and articles were used in the methodology.

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947 views12 pages

Depreciation INVESTIGATORY PROJECT

Depreciation is the process by which a company allocates the cost of an asset over its useful life through recording depreciation expenses on financial statements. This spreads the initial cost of the asset over its lifetime. For intangible assets like brands and intellectual property, the process is called amortization, and for natural resources it is called depletion. Depreciation estimates the decrease in an asset's value over time based on its useful life and is used for taxation purposes like property tax. The objective of the study is to understand how depreciation is calculated and used to ascertain true profits and show asset values properly over time. Secondary sources like the internet, books, and articles were used in the methodology.

Uploaded by

sarmistha guduli
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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INTRODUCTION

Depreciation is the process by which a company allocates an asset's cost over the
duration of its useful life. Each time a company prepares its financial statements, it records a
depreciation expense to allocate a portion of the cost of the buildings, machines or equipment
it has purchased to the current fiscal year. The purpose of recording depreciation as an
expense is to spread the initial price of the asset over its useful life. For intangible assets -
such as brands and intellectual property - this process of allocating costs over time is
called amortization. For natural resources - such as minerals, timber and oil reserves - it's
called depletion. (For a background on reading financial statements check out What You Need
To Know About Financial Statements.)

Depreciation, i.e. a decrease in an asset's value, may be caused by a number of other


factors as well such as unfavorable market conditions, etc. Machinery, equipment, currency
are some examples of assets that are likely to depreciate over a specific period of time.
Opposite of depreciation is appreciation which is increase in the value of an asset over a
period of time.

Accounting estimates the decrease in value using the information regarding the useful
life of the asset. This is useful for estimation of property value for taxation purposes like
property tax etc. For such assets like real estate, market and economic conditions are likely to
be crucial such as in cases of economic downturn.

OBJECTIVE OF THE STUDY

 To study about knowing Depreciation of Accounting


 To study about calculation of Business on Depreciation.
 To ascertain true profits: Depreciation is a charge for capital assets used in earning
profits.
 To show the assets at their proper values: Depreciation must be accounted for in order
to show the assets.
 To create funds for replacement of assets: Depreciation is non-cash expenditure.

METHODOLOGY OF THE STUDY

The data provided in this topic are obtained from


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Secondary source. The basic sources are:-
 Internet
 Books
 Magazines & Articles
 Company websites & Discussion with company guides.
The knowledge provided by our teachers and professors are proved beneficial for me

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COMPREHENSIVE PROBLEM

A firm purchase plant and machinery on 1st April, 2012 for Rs. 50,000. Depreciation
is written-off at the rate of 10 percent per annum. Show for five years plant and machinery
account and depreciation account under both the fixed instalment and reducing instalment
methods. The form closes its books on 31st December each year.

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WORKING NOTE:

CONCLUSION

Depreciation is an important part of accounting records which helps companies

maintain their income statement and balance sheet properly with the right profits recorded.

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Using a good business accounting software can help you record the depreciation correctly

without making manual mistakes. You can try Profit Books. It is a simple accounting

software which lets you create professional invoices, track expenses and calculate taxes

without any accounting knowledge.

Depreciation is a method of reallocating the cost of a tangible asset over its useful life

span of it being in motion. Businesses depreciate long-term assets for both tax and accounting

purpose. The former affects the balance sheet of a business or entity, and the latter affects the

net income that they report.

BIBLIOGARPHY

BOOK

 Double Entry Book- Keeping (Kalyani Publishers), Jain Narang

WEBSITES:

 [Link]

 [Link]

 [Link]

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