Depriciation

Depreciation is a method of allocating the cost of a tangible asset over its useful life. Businesses depreciate long-term assets for both tax and accounting purposes. It is a decrease in an asset’s value caused by unfavorable market conditions. a decrease in an asset’s value, may be caused by a number of other factors as well such as unfavorable market conditions, etc. Machinery, equipment, currency are some examples of assets that are likely to depreciate over a specific period of time.
–Depreciation ? Different Methods
–Straight line method;(cost-residual value)/ estimated useful life
–Written Down Value method or declining balance method : %age is fixed
–Accelerated Depreciation
–Sum of years? digits method; Example, if an asset is to be depreciated over five years, add digits 5,4,3,2,1 .The total is 15.For the 1st year depreciation is 5/15,for 2nd year,4/15 , and so on
–Need for depreciation
–To know correct profit
–Show correct financial position
–Make provision for replacement of assets
–Factors of depreciation
–Cost of asset
–Residual value
–Life of an asset
–AS-6 deals with Depreciation Accounting

Accounting & Finance for Banking

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