ASSETS Anything of value owned or anything which will help the business to get cash or cash’s benefit in future is an asset.

Classification of Assets

Fixed Assets Assets which will remain in the business for a long period of time. These assets are acquired for carrying on the business operations and not to market these in the normal course of business. These assets have longer useful economic life .

Current Assets These are facilities or assets acquired with an intention of sale or conversion into finished goods to be marketed in the near future. Current assets have relatively shorter life. These get converted into cash within a period of one year. : stock of goods, debtors, cash in hand, cash at bank, etc.

Examples of fixed Assets

New Assets become old

Assets loose their value due: Wear and tear: chemical reaction, weathering, intensity of use, care in handling, standard of maintenance.

Accidents

Depletion It is the expired utility of wasting assets like mines, oil-wells. These assets lose their very existence, when the oil or coal in mines comes to an end.

Exhaustion Some assets such as animals and trees lose much of their value with the passage of time.

Obsolescence Due to new inventions ,out-dated assets may have to be scrapped even though they are capable of being used.

Depreciation The reduction in the value of an asset caused by its use for the purpose of earning profit is termed as depreciation..

Methods of providing depreciation

Straight line method of calculation DEPRECIATION: rate cost Number of.months in use x x 100 12

For Example For Eg: If cost of a machine is Rs.50,000 Rate of depreciation 10%p.a . Number of months used is 9 months

To calculate Depreciation look for the following Cost =50,000 Rate=10%p.a Number of months in use=9 months Depreciation = 50,000 x 10 x 9 100 12 = Rs 3750

Recording of depreciation journal entries On purchase of asset Asset A/C Dr Cash A/C On charging depreciation at the end of accounting period Depreciation A/C Dr Asset A/C

Example X Ltd, purchased furniture for Rs. 25,000 on 1st July 2006.The company provides depreciation at the rate 10% p.a.on straight line method. Give journal entries in the Books and show the Furniture Account from 2006 to 2008.

Calculation of Depreciation for 2006 10 25,000 x 6 x 2006 : 12 100 = Rs 1250

Calculation of Depreciation for 2007&2008 12 10 25,000 x x 100 12 = Rs.2,500

JOURNAL ENTRIES Date particulars Debit Credit 1-7-06 Furniture A/C Dr 25,000 25,000 Cash A/C Depreciation A/C Dr 1250 31-12-06 1250 Furniture A/C Depreciation A/C Dr 2500 31-12-07 2500 Furniture A/C Depreciation A/C Dr 2500 31-12-08 2500 Furniture A/C

Furniture Acount Particulars Date Amount Cash A/C 25,000 Depreciation 1.07.06 Cash A/C 25,000 31-12-06 Depreciation 1250 31-12-06 23,750 Balance C/D 25,000 25,000 Depreciation 2500 Balance B/D 23,750 31-12-07 1-01-07 31-12-07 21,250 Balance C/D 23,750 23,750 1-01-08 Balance B/D 21,250

Furniture Acount Particulars Date Amount Cash A/C 25,000 Depreciation 1.07.06 Cash A/C 25,000 31-12-06 Depreciation 1250 31-12-06 23,750 Balance C/D 25,000 25,000 By Depreciation 31-12-07 2500 Balance B/D 23,750 1-01-07 By Cash 20,000 By P& L A/C 1,250 23,750 23,750

Furniture Acount Particulars Date Amount Cash A/C 25,000 Depreciation 1.07.06 Cash A/C 25,000 31-12-06 Depreciation 1250 31-12-06 23,750 Balance C/D 25,000 25,000 By Depreciation 31-12-07 2,500 Balance B/D 23,750 1-01-07 By Balance c/d 42,500 45,000 45,000

Provision foe Depreciation account Under provision for depreciation account two accounts are maintained by the business. Fixed asset account Provision for depreciation account

Fixed Asset Account In this method the asset is shown at its original cost throughout its life and the depreciation on the asset is shown in a separate account called Provision for Depreciation account. Provision for depreciation account is also called as Accumulated Depreciation Account(Means an account showing total depreciation on the asset that is used)

Investing activity These are concerned with the purchase and sale of fixed assets of the business. These includes purchase of fixed assets, goodwill and Long term investments cash outflows) Sale of fixed, investments (cash inflows)

Calculate cash flows due to Investing Activity Particulars 2015 2016 Land & Building 10,00,000 15,00,000 Goodwill 7,00,000 9,00,000 Investment (long term) 5,00,000 2,00,000

Answer (Less)Purchase of Land & Building (5,00,000) (Less) Purchase of Goodwill (2,00,000) (Add) Sale of Investment 3,00,000 Total cash used in Investing activity (4,00,000)

Calculate cash flow from Investing activity Particulars 2015 2016 Land & Building 10,00,000 15,00,000 Goodwill 7,00,000 9,00,000 Investment 5,00,000 2,00,000 Additional information: Depreciation charged on Land & Building is Rs2,00,000

Land & Building account Particulars amount particulars To balance b/d 10,00,000 By Depreciation A/C 2,00,000 To cash a/c (B.fig) 7,00,000 By Balance c/d 15,00,000 17,00,000 Cash flow from investing activity: (Less)Purchase of land &Building (7,00,000) (Less)Purchase of goodwill (2,00,000) Add : Sale of Investment 3,00,000 Cash used in Investing activity 6,00,000

Calculate cash from investing activity Particulars 2016 2017 Land & Buildings 15,00,000 22,00,000 goodwill 5,00,000 3,50,000 Investment Additional information: New building priced at Rs 10,00,000 was purchased during the year.

Land & Building A/C Particulars Amount To Balance b/d 15,00,000 To cash A/c 10,00,000 By Balance c/d 22,00,000 25,00,000 Cash Used in investing activity: (less )Purchase of fixed assets : (10,00,000)