Adjustment: Depreciation Video Lecture | Accountancy Class 11 - Commerce

students let us try to understand the
concept of depreciation with this
example the trial balance shows the
value of furniture on 31 3 2014 as
rupees one lakh furniture is to be
depreciated at fifteen percent so the
question says the furniture value should
be reduced by 15 percent it means they
want to reduce the value of furniture
because of some reason what could be
those reasons the reasons can be one
because of usage two it can be because
of lapse of time three it can be lost in
value of asset in the market see the
usage will create what usage will create
wear and tear so the asset may not give
the same amount of benefit in the coming
days and lapse of time sometimes since
because time has elapsed the asset will
lose its value simple example can be
purchase of car let us purchase a car
will use it for one year I even don't
use it for one year keep it idle for one
year then sell it will have or it will
fetch surely a lesser value in the
market and third loss in value of asset
in the market itself the product become
obsolete the product become outdated so
even if your product was new even if it
is generating some news for you it may
not fetch value in the market so for
these reasons not only the furniture any
asset can lose its value so we generally
term them as depreciation so what is
depreciation depreciation basically
means the reduction in value of asset
not confined to a particular asset like
furniture it is a reduction in value of
asset and this reduction should be
accounted in the books and how it will
be accounted will see depreciation will
find place in both profit and loss
account number one and it will also find
the place in balance sheet why it should
find a place in profit and loss account
because depreciation being
Lawson value of asset it should be
captured on the expensive side of the
P&L account so on the P&L it will find a
place on debit side or on the expense
side as to depreciation and it will also
find the place in the balance sheet on
the asset side see in the balance sheet
on the assert particular fixed assets
will be shown and this depreciation will
be shown as a reduction or a deduction
from the fixed assets so it will be
shown as less depreciation from the
particular fixed assets so the
accounting effect is it is debited in P
and the lacan and credited in the
ascetical credited means reducing the
value of asset asset will always have
debit so when you credit the asset it
will lose its value so accounting entry
is going to be simple depreciation being
lost we have to debit so depreciation
account debit and why we are debiting
nominal account rule says debit all
expenses and losses so depreciation
account debit and we are crediting
concern fixed asset because fixed asset
will always have debit balance by
crediting we are reducing the value of
fixed assets so two particular fixed
asset account so this is the accounting
entry that will be passed now we will
have a look at the example our example
furniture is one lakh and depreciation
is fifteen percent so one lakh and
fifteen percent is going to be fifteen
thousand so depreciation is going to be
fifteen thousand depreciation account
should be limited by fifteen thousand
and particular fixed asset account in
our case it is furniture account
furniture account should be credited by
fifteen thousand so we will see the
accounting effect in P&L and balance
sheet in P&L will find on the
depreciation as fifteen thousand and in
balance sheet the effect will be instead
of fixed asset will have it as furniture
and what is the value of furniture the
value of furniture as available in the
question is one lakh so it's going to be
one lakh and from this one lakh will
deduct depreciation on furniture which
we have calculated which is fifteen
thousand so net is eighty five thousand
and this is the return down value of
asset means we have reduced the value of
asset by writing depreciation thank you
students