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

5. Classification of Assets

6. 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 .

7. 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.

8. Examples of fixed Assets

13. New Assets become old

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

16. Accidents

17. 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.

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

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

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

25. Methods of providing depreciation

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

27. 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

28. 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
= Rs 3750

29. 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

30. 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.

31. Calculation of Depreciation for 200610
25,000 x 6 x
2006 : 12
100
= Rs 1250

32. Calculation of Depreciation for 2007&200812 10
25,000 x x
100 12
= Rs.2,500

33. 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
1250
Furniture A/C
Depreciation A/C Dr
2500
2500
Furniture A/C
Depreciation A/C Dr
2500
2500
Furniture A/C

34. Furniture Acount Particulars Date Amount Cash A/C 25,000 Depreciation
Cash A/C
25,000
Depreciation
1250
23,750
Balance C/D
25,000
25,000
Depreciation
2500
Balance B/D
23,750
21,250
Balance C/D
23,750
23,750
Balance B/D
21,250

35. Furniture Acount Particulars Date Amount Cash A/C 25,000 Depreciation
Cash A/C
25,000
Depreciation
1250
23,750
Balance C/D
25,000
25,000
By Depreciation
2500
Balance B/D
23,750
By Cash
20,000
By P& L A/C
1,250
23,750
23,750

36. Furniture Acount Particulars Date Amount Cash A/C 25,000 Depreciation
Cash A/C
25,000
Depreciation
1250
23,750
Balance C/D
25,000
25,000
By Depreciation
2,500
Balance B/D
23,750
By Balance c/d
42,500
45,000
45,000

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

38. 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)

39. 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)

40. 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

41. 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)

42. 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

43. 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 ,00,000
Cash used in Investing activity ,00,000

44. 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.

45. 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)