MTH622 MIDTERM PAST PAPER GETCAREERALERT.COM

Depreciation basis. Depreciation is the expiry or use of a portion of a fixed asset during an accounting period. this is An accounting period that entails expenses incurred during that period.

Factory assets have a useful life. When spanned over a number of fiscal years, the portion used in one reporting period is billed as follows: Income statement for that accounting period in the form of depreciation expenses. The land is carried at cost and other fixed assets are carried at book value.

Unpaid depreciation. For this, separate Depreciation Expenses and Accumulated Depreciation Accounts for different plant assets are maintained.

It must also be noted that depreciation is a process of cost allocation and not a process of valuation as such. Computing Depreciation Different methods are available for computing the depreciation of fixed assets. Different methods can be used for different assets.

However, comparison among firms with different depreciation methods becomes difficult because of the fact that each firm uses different methods for calculating depreciation, which ultimately affects its net income and balance sheet. Depreciation calculation methods i) Linear method:

in this case, the depreciation is distributed evenly Duration. Suppose a factory asset is acquired for Rs 17,000. It is estimated that The useful life is five years and the residual value at the end of five years (the salvage value) is 2,000 rupees Depreciation is a systematic allocation of the cost of a depreciable asset to be expended over its useful life. There is a process for allocating the cost of fixed assets to the profit and loss account.

Fixed Assets are those assets that are: Of long life To be used in the business to generate revenue Not bought with the main purpose of resale.

Fixed assets are also called “Depreciable Assets” When an expense is incurred, it is charged to the profit & loss accounts of the same accounting period in which it has been incurred.

Fixed assets are used for a longer period of time. Now, the question is how to charge a fixed asset to the profit & loss account. For this purpose, the estimated life of the asset is determined.

Estimated useful life is the number of years during which the fixed asset is expected to be used efficiently. he is The life for which the machine is estimated to provide a benefit greater than the cost of operating it. so total cost From the original divided by the total number of years estimated.

The value which is specified is called The “depreciation for the year” and is charged to the income statement. the same amount is deducted from The total cost of a fixed asset in the year in which depreciation is charged. The net amount (after deducting depreciation) is called ‘Written down Value.

WDV = Original cost of the fixed asset – Accumulated Depreciation is the depreciation that has been charged on a particular asset from the time of purchase of the asset to the present time. This is the amount that has been charged to the profit and loss account from the year of purchase to the present year.

Depreciation accumulated over the years is called accumulated depreciation. Useful Life  Useful Life or Economic Life is the time period for the machine is expected to operate efficiently.  It is the life for which a machine is estimated to provide more benefit than the cost to run it.

Grouping of Fixed Assets Major groups of Fixed Assets:  Land  Building  Plant and Machinery  Furniture and Fixtures  Office Equipment Vehicles No depreciation is charged for ‘Land’. In the case of ‘Leased Asset/Lease Hold Land,’ the amount paid for it is charged over the life of the lease and is called Amortization. Journal entries for recording Depreciation Purchase of fixed assets:

Debit: Relevant asset account Credit: Cash, Bank, or Payable Account For the recording of depreciation, the following two heads of accounts are used: Depreciation Expense Account  Accumulated Depreciation Account Depreciation expense account contains the depreciation of the current year.

Accumulated depreciation contains the depreciation of the asset from the financial year in which it was bought up to the present financial year. . In this account, the depreciation of the following years in which the asset was used is added. In other words, this statement shows the cost of using the asset up to the current year.

The amortization account under the heading of administrative expenses is referred to as the profit and loss account. On the balance sheet, fixed assets at a depreciated value, ie. WDV = Actual Fixed Asset Cost – Accumulated Amortization. The depreciation journals are as follows:

Debit: Debit Account Credit: Accumulated Depreciation Account Presentation of depreciation The depreciation claim at the beginning of your profit and loss account depends on the nature of the work performed. By assets. Think of your organization as buying a computer.

If the computer is used by: Management, which means that management is done by the computer. So IT depreciation and An administration fee will be charged.