1. ACCOUNTANCY
TOPIC :-
DEPRECIATION

2. DEPRECIATION
Depreciation is a combination of two words ‘De’ & ‘Preciation’. ‘De’ means decrease & ‘Preciation’ means Price. Therefore Depreciation means decrease in the value of fixed Assets due to its constant use.

3. DEFINITIONS
According to R.N. Carter, “Depreciation is gradual and permanent decrease in the value of an asset from any cause.”
In the words of W.Pickles, “Depreciation may be defined as permanent & continuous decrease in the quality, quantity or the value of an assets.”

4. CAUSE OF DEPRECIATION

5. NEED FOR DEPRECIATION For determining Net Profit or Net Loss.
For showing true value of assets.
Provision of funds for replacement of assets.
Ascertaining accurate cost of production.
Distribution of dividend out of profit only.
Avoiding over payment of Income Tax.

6. METHODS OF CALCULATING DEPRECIATION

7. FIXED INSTALMENT METHOD
It is the simplest method of charging depreciation. In this method the value of asset is divided by the estimated life period of the assets.
Suppose the value of an assets is Rs 2,00,000 & its estimated life is 10 years, in this case the depreciation is 20,000.

8. FIXED INSTALMENT METHOD
This method is also known as straight line method, Original Cost Method and Equal Installment method
The formula of this method is as under
Depreciation=
Cost of asset – Scrape Value
Estimated life of assets

9. WRITTEN DOWN VALUE
Under this method, the value of asset upon which depreciation is to be calculated is goes on diminishing, so the amount of depreciation to be charged every year also goes on declining.
Suppose the value of an asset is Rs 2,00,000 & its rate of depreciation is 10% p.a. The value of depreciation during 1st year is Rs 20,000 & 2nd year is Rs 18,000.

10. HOME ASSIGNMENT What do you mean by Depreciation?
Briefly describe the various causes of Depreciation?
Why is it necessary for a firm to charge Depreciation?
What do you mean by Straight Line Method?
Define W.D.V. method?

11. THANK YOU