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Home » Depreciation: Theory and Practice: Class 11 Account Note
Depreciation: Theory and Practices

Depreciation: Theory and Practice: Class 11 Account Note

By Your All NotesDecember 13, 2021Updated:December 27, 20211 Comment7 Mins Read
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Depreciation: Theory and Practice

Permanent decline in the value of fixed assets is called depreciation. all business organization should purchase various fixed assets like, building, machinery, furniture, etc. every year depreciation must be deduct from the value of fixed assets.

 

Causes of depreciation

  1. wear and tear
  2. depletion
  3. accidents
  4. fall in market price
  5. efflux of time
  6. change in technology

 

affecting factor for amount of depreciation

  1. cost of price of assets
  2. invoice price of fixed assets
  3. transportation cost
  4. installation or erection cost
  5. import duty

 

  1. estimated salvage value/scrap value of assets
  2. estimated working life/useful life of assets
  3. provision for income tax act/company act

methods of charging depn

  1. straight line method
  2. diminishing balance method
  3. depreciation fund method
  4. annuity method
  5. re-valuation method

straight line method:-

in this method depreciation should be charged equal amount every year from the purchase date of fixed assets till sod date depreciation amount should be written off equally. this methods also known as original cost method equal installment method, historical method etc

  1. find out the amount of depreciation
  2. when ./. of depreciation is given

annual depreciation = cost of assets x  %

100

  1. if working life of assets is given

annual depreciation= cost of assets – salvage value

Working life

XYZ  company

machinery account

Date Particulars if Amount Date Particulars if Amount
1-1-2005 To bank a/c

[3800 +2000]

40000 31-12-2005 By depn a/c 7000
By balance c/d 33000
40000 40000
1-1-2006 To balance b/d 33000 3-12-2006 By depn a/c 7000
By balance c/d 26000
33000 33000
1-1-2007 To balance b/d 26000 31-12-2007 By depn a/c 7000
By balance c/d 19000
26000 26000
1-1-2008 To balance b/d 19000 31-12-2008 By depn a/c 7000
By balance c/d 12000
19000
1-1-2009 To balance b/d 1200

 

 

annual depreciation

cost-salvage value                                                                                                                                                                                                                            working life

40,000-5000                                                                                                                        5

Rs,7000.

 

  1. cr.
Date Particular If Amount Date Particular If Amount
1-1 To, bank A/c 22,000 31-12 By, depn– A/c 2,000
2006 By, balance c/d 20,000
22,000 22,000
1-1-2007 To, balance b/d 20,000
1-1-2007 To, bank A/c 7,500 31-12 By, depn– A/c 2,700
2007 [2,000+700]
By, balance c/d 24,800
27,500
1-1-2008 To, balance b/d 24,800 31-12 By, depn– A/c 27,000
[200+700]
24,000 By, balance c/d 22,100
1-1 2009 To, balance c/d 22,100 31-12 By, depn– A/c
To, bank A/c 6,300 2009 [2000+700+300] 3,000
By balance c/d 25,400
28,400 28,400
1-1-2010 To balance b/d 25,400 31-12 By, depn– A/c 3,300
2010 [2000+700+600]
By balance c/d 22,100
25,000 25,400
1-1-2011 To, balance b/d 22,100

annual depn-= cost – salvage vaue

Working life

=  22000-2000

10yrs

= 20000

10yrs

= 2000.

annual depn– -= cost – salvage vaue

Working life

=7500-500

10

=7000

10

= 700

annual depn-= salvage vaue

Working life

= 6300-300

10

= 6000

10

= 600

for 6 month

=600×6

12

=300

Date Particular If Amount Date Particular If Amount
1-1-2065 To, bank A/c [60,000+1,00,000] 1,60,000 31-12 By, depn– A/c 16,000
2065 By, balance c/d 1,44,000
1,60,000 1,60,000
1-1-2066 To, balance b/d 1,44,000 31-12 By, depn– A/c 16,000
2066 By, balance b/d 1,28,000
1,44,000 1,44,000
1-1-2067 To balance b/d 1,28,000 31-12 By, depn– A/c 1500
By bank A/c 40,000
Sale value
By, plc a/c 6,500
(loss on sale )
31-12 By, depn– A/c 10,000
2067 (remaining mch)
By, balance c/d 70,000
1,28,000 1,28,000
1-1-2068 To, balance b/d 70,000

 

annual depn– = cost x %

100

=1,60,000×10

100

= Rs. 16,000

Working

1-1-65                                        60,000                                   6000×3

– depn–                                          6000                                       12

1-1-66                                      54,000                                     = 15000

– depn–                                          6000

1-1-67                                          48000                                 B. V > C. V

depn–                                            1500                                              loss

  1. V 46,500

C.V                                                40000

loss                                               6500

1-1-2065

 

For fixed assets sold

  1. depn– amount up to sold date – Cr. side          cv- cash value
  2. sale value – Cr. side BV-book value
  3. profit loss.
  4. if B. V is greater than CV = loss-credit side
  5. if C. V is greater than BV = profit – dr. side

XYZ transportation co. motor vehicle account

  1. cr.
Date Particular If Amount Date Particular If Amount
1-1-2006 To bank A/c  [1,40,000+1,60,000]  

3,00,000

31-12 By, depn– A/c 30,000
2006 By, balance c/d  

 

2,70,000

3,00,000 3,00,000
1-1-2007 To balance b/d 2,70,000 31-12 by, depn– A/c 30,000
2007 By, balance c/d  

 

2,40,000

2,70,000 2,70,000
1-1-2008 To balance b/d 2,40,000 1-7-

2008

by, depn– A/c 8000
(sales  bus)
By, bank A/c 1,32,000
(S. V)
1-7-2008 To, pl A/c (profit on sale) 12,000 3-12 by, depn– A/c 14,000
2008 (ram) bus
By, balance c/d  

 

98,000

252000

 

annual depn– = cost x %

100

=300000 x 10

100

= 30,000

Working

1-1-2006             1,60,000

-depn–                    16,000

1-1-2007               144000

-depn–                    16000

1-1-2008               1, 28,000

-depn–                    8000                                           =16000 x 6

B.V.                        1, 20,000                                                  12 2

S.V.                        13000                                           =8000

profit                     : 12000

 

  1. cr.
Date Particular If Amount Date Particular If Amount
1-4-2005 To, bank A/c (36000+4000) 40,000 31-3 By depression A/c  

4000

2006 By balance c/d 36000
40000 40000
1-4-2006 To balance b/d 36,000 31. 3 By dep. A/c 40,000
2007 By balance c/d 32,000
36,000 36,000
1-4-2007 To balance b/d 32,000 1.10 By dep. A/c 300
2007 (sale mach)
1-10-2007 To profit A/c 500 By bank A/c 5000
()profit on sale)
1-10-2007 To bank A/c 10000 31. 3 By dep. A/c 3400
2008 (rem. mach)
By, depn– A/c 500
(new mach.)
By, balance c/d 33,300
42,500 42500
1-4-2008 To, balanced c/d  

33,300

 

Working

1-4-2005                       6000

Depn–                              600

1-4-2006                       5,400

Depn–                              600

1-4-2007                       4,800

Depn–                              300

  1. V. 4,500
  2. V. 5000

Profit                              500

Remaining mach

40,000

sale =                     600

34000

 

 

Diminishing Balance Method.

The value of fixed assets decrease every year. If depreciation is written off on current year book value is known as diminishing balance method. in this method the amount of depreciation is decreased every year.

R= 1-

R = 1-

10,000

= 1-4

= 1- (2)2

= 1-2 x 0.12

Where,

R = rate of depn–

N = working life of assets

S = salvage value of assets

C = cost price of the assets

Diminishing balance method is also known as reducing balance method, written down value method, reducing installment method.

Machinery account

 

Date Particular Jf Amount Date Particular Jf Amount
1-1-1998 To, bank A/c 2,00,000 31.12-1998 By, depn– A/c 20,000
By, balance c/d 1,80,000
2,00,000 2,00,000
1-1-1999 To, bank b/d 1,80,000 31.12-1999 By, depn– A/c 18,000
By, balance c/d 1,62,000
1,80,000 1,80,000
1-1-2000 To, balance b/d 1,62,000 31.12-2000 By, depn– A/c 16,200
By, balance c/d 1,45,800
1,62,000 1,62,000
1-1-2001 To, balance b/d 1,45,800 31.12-2001 By, depn– A/c 14,580
By, balance c/d 1,31,220
1-1-2002 To, balance b/d 1,31,220

 

Machinery account

Date Particular Jf Amt. Date Particular Jf Amt.
1-1-2065 To, bank A/c [60,000+100000] 1,60,000 31.12-2065 By, depn– A/c 16,000
By, balance c/d 1,44,000
1,60,000 1,60,000
1-1-2066 To, balance b/d 1,44,,000 31.12-2066 By, depn– A/c 14,400
By, balance c/d 1,29,600
1,44,000 1,44,000
1-1-2067 To, bank b/d 1,29,600 31.12-2067 By, depn– A/c 1,215
By, bank A/c 40,000
(sale value)
By, p/l A/c 1,385
(loss on sale)
31.12-2067 By, dep- A/c (rem.) 8100
By, balance c/d  

 

72,900

1,29,600 1,29,600

 

Working

1-1-2065               60,000

-depn–                    6000

1-1-2066               54000

-depn–                    5400

1-1-2067               48,600

-depn–                    1215

  1. V. 47385
  2. V. 40000

loss                         7385

 

remaining

129600                 total

-48600                  sale

81000

 

machinery account

Date Particular Jf Amt Date Particular Jf Amt.
1-1-1999 To, bank A/c [2,90,000+10,000] 3,00,000 31.12-1999 By, depn– A/c [30,000+5000] 35,000
1-1-1999 To, bank A/c 1,00,000 By, balance c/d 3, 65,000
4,00,000 4,00,000
1-1-2000 To, balance b/d 36,5000 31.12-1999 By, depn– A/c 36,500
By, balance c/d 32,85,000
36,5000 36,5000
1-1-2001 To, balance b/d 32,8500 1-7-2001 By, depn– A/c (sales mach.) 12,150
By, bank A/c (sale value) 14,300
1-1 To bank A/c 20,000 By, p/l A/c (loss on sale) 87,850
31.12-2001 By, depn– A/c(rem. mach.) 8550
By, depn- A/c (new mach.) 10,000
By, balance c/d 2,66,950
5,28,500

 

Working

1-1-1999               300000

-depn–                    30,000

1-1-2000               270000

-depn–                    2700

1-1-2001               243000

depn–                      12150

  1. V. 230850
  2. V. 143000

Loss.                       87850

 

Remaining machinery

328500

-24300

85500 x 10%

8550

 

1-1     to, balance b/d  266950      31.12 by, depn– A/c      266950

by, balance c/d             240225

266950                                              266950

  • balance b/d 240225

 

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