2.  The original amount of fixed asset consumed during its period of use  It is an expense for services rendered by the fixed asset

3.  Depreciation is gradual  It is permanent  Occurs on fixed assets not on current assets  Is a non-cash item  Shown in the P/L a/c as an expense  Consequently reduces net profit

4.  Wear and Tear  Erosion  Obsolescence  Depletion

5. 1. Straight Line Method  Depreciation remains constant  Asset value reduces to scrap Depreciation = Original Cost - Scrap Value Estimated Life

6. 2. Reducing Balance Method/ Diminising Balance Method  Percentage depreciation will be given  Only method which does not consider scrap

7. 3. Sum of Digits Method TThe digits or the remaining useful life of the asset is calculated TThe digits are added up to get the sum of digits TThe corresponding ratio of digits is then obtained DDepreciation = Original cost --- Scrap value X Ratio

8. 4. Usage Method  The usage is calculated every year at a particular rate  Multiply the number of hours for which an asset has been used by the rate Depreciation = Original cost - Scrap value X hours of use Estimated life

9.  Asset a/c  Provision for depreciation a/c  Disposal a/c

10.  Asset a/c  Records 4 items  Opening balance  Closing balance  Purchase of asset  Sale of asset

11.  Provision for depreciation a/c  Simply a book-keeping entry  Every year a certain sum is transferred from the P/L a/c to the provision account  Money is available to replace the asset at the end of its estimated useful life

12.  Asset Disposal a/c  Prepared only on sale of asset  Shows the profit or loss on sale of an asset

13.  Q & A