Financial Accounting- II
G. Revathi Govindharajan
M.Com., B.Ed., HDCA, PGDCA, Ph.D. (Pursuing)
Assistant Professor | Aspiring Data Analyst
Email: [email protected]
Depreciation
Unit - I
AGENDA
1. Attendance
2. Assessing the Video Viewing + MCQ – in the presentation) - (Approximately 6-10 Questions). Attendance Order - Link Internal Mark
- 10 Minutes.
3. Review of Previous Class Topic – 3 Minutes
4. Today’s Class Topic (30 Minutes)
5. Mid-Class Assessment -1 : Approximately 5 MCQ Questions. (Repeat the Class if Not Satisfied with Students Answers) – 5 Minutes
6. Today’s Class Topic (30 Minutes)
7. Mid-Class Assessment – 2 : Approximately 5 MCQ Questions. (Repeat the Class if Not Satisfied with the students Answers) - 5
Minutes
8. Class Work – Applications - Problem Solving – 10 minuets
9. Homework – Assignment + Discussing the Solution for Assignment – 10 to Minutes - Depends Topics which you covered (At least
once in a week)
10. Intro of “ Next Topic ” 5 Minutes
Education is the key to
success
Overview of Depreciation and Its Methods
S.No Topic Details
1 Accounting for Depreciation Definition and Importance
Need and Significance of
2 Why depreciation is necessary
Depreciation
Various approaches to calculate
3 Methods of Depreciation
depreciation
4 Straight Line Method (SLM) Equal allocation of depreciation per year
Written Down Value Method
5 Depreciation based on diminishing value
(WDV)
6\ Annuity Method Depreciation combined with interest
7 Machine Hour Rate Method Based on machine usage hours
8 Reserves and Provision Setting aside funds for contingencies
Accounting for Depreciation
• Depreciation is the accounting process that allocates the
cost of a tangible asset over its useful life. It’s an indirect
expenses.
Need and Significance of Depreciation
1.Correct Records: Keeps asset value up to date.
2.Tax Savings: Lowers taxable income.
3.Profit Calculation: Shows true profit.
4.Asset Planning: Helps plan for replacing assets.
5.Legal Requirement: Follows accounting rules.
Methods of Depreciation
•Straight-Line Method:
Depreciation is calculated equally over the asset's useful life.
•Declining Balance Method:
Depreciation is higher in the early years and decreases over time.
•Sum of the Years' Digits Method:
Depreciation is based on a fraction of the asset’s useful life, with larger
amounts in earlier years.
•Units of Production Method:
Depreciation depends on the asset’s usage or output rather than time.
•Double Declining Balance Method:
Depreciation is calculated at double the rate of the straight-line method,
accelerating over time.
Straight Line Method
Straight Line Method:
Depreciation is evenly spread over the
asset's useful life.
Formula:
Depreciation=Useful Life Cost− Scrap
Value
Each year, the same amount of depreciation
is charged.
Straight Line Method
Formula
• Example:
Depreciation =Useful Life Cost−
• Cost of Asset: ₹15,000
Scrap Value
• Salvage Value: ₹3,000
• Useful Life: 5 years
• 15,000−3,000=512,000 = ₹2,400
• Depreciation per year: ₹2,400
• So, ₹2,400 will be depreciated each year for 5 years.
BOOK SUM : 1
A company purchased a plant for Rs.50,000.
The useful life of the plant is 10 years and the
residual value is Rs.10,000. Find out the rate of
Depreciation under the straight-line
Solution
• To calculate the rate of depreciation:
• Given:
• Cost of Plant: ₹50,000
• Residual Value: ₹10,000
• Useful Life: 10 years
• Step 1: Annual Depreciation :
• 50,000−10,000/ 10 = ₹4,000
• Step 2: Depreciation Rate :
• 4,000/ 50,000 = ×100 = 8%
• Answer:
• The depreciation rate is 8%.
Declining Balance Method
• Declining Balance Method:
Depreciation is higher in the early years and decreases
over time.
Depreciation =Book Value at Beginning of Year × Depreciation Rate
• Example of Declining Balance Method:
• Cost of Asset: ₹10,000
• Depreciation Rate: 20%
Solution for the Declining
Balance Method
• Year 1 :
Depreciation=10,000×20% = ₹2,000
• Year 2 :
Depreciation=(10,000−2,000)×20% = ₹1,600
• Year 3 :
Depreciation=(8,000−1,600)×20%=₹1,280
Each year, the depreciation decreases based on the remaining
book value.
Questions and Discussion
• Invite the audience to ask questions or share insights.
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[email protected] 🔗 LinkedIn: Revathi Srig - LinkedIn Profile
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