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Page 1 Depreciation Accounting CPT Section A: Fundamentals of Accounting Chapter-5 Part 2: Methods of Depreciation CA. Poonam Patni Page 2 Depreciation Accounting CPT Section A: Fundamentals of Accounting Chapter-5 Part 2: Methods of Depreciation CA. Poonam Patni The Topics Already covered in Part 1 Journal Entries for Depreciation Factors to be considered for Depreciation Objectives of Depreciation Causes of Depreciation Understand the Meaning & Need of Depreciation Page 3 Depreciation Accounting CPT Section A: Fundamentals of Accounting Chapter-5 Part 2: Methods of Depreciation CA. Poonam Patni The Topics Already covered in Part 1 Journal Entries for Depreciation Factors to be considered for Depreciation Objectives of Depreciation Causes of Depreciation Understand the Meaning & Need of Depreciation Learning Objectives SLM Method • Formula • Rationale • Advantages • Disadvantages • Journal Entry • Examples WDV Method • Formula • Rationale • Advantages • Disadvantages • Journal Entry • Examples SOYD Method • Formula • Rationale • Advantages • Disadvantages • Journal Entry • Examples Page 4 Depreciation Accounting CPT Section A: Fundamentals of Accounting Chapter-5 Part 2: Methods of Depreciation CA. Poonam Patni The Topics Already covered in Part 1 Journal Entries for Depreciation Factors to be considered for Depreciation Objectives of Depreciation Causes of Depreciation Understand the Meaning & Need of Depreciation Learning Objectives SLM Method • Formula • Rationale • Advantages • Disadvantages • Journal Entry • Examples WDV Method • Formula • Rationale • Advantages • Disadvantages • Journal Entry • Examples SOYD Method • Formula • Rationale • Advantages • Disadvantages • Journal Entry • Examples Methods for Providing Depreciation Straight Line Method Reducing Balance Method Sum of Years of Digits Method Annuity Method Sinking Fund Method Insurance Policy Method Machine Hour Method Production Unit Method Page 5 Depreciation Accounting CPT Section A: Fundamentals of Accounting Chapter-5 Part 2: Methods of Depreciation CA. Poonam Patni The Topics Already covered in Part 1 Journal Entries for Depreciation Factors to be considered for Depreciation Objectives of Depreciation Causes of Depreciation Understand the Meaning & Need of Depreciation Learning Objectives SLM Method • Formula • Rationale • Advantages • Disadvantages • Journal Entry • Examples WDV Method • Formula • Rationale • Advantages • Disadvantages • Journal Entry • Examples SOYD Method • Formula • Rationale • Advantages • Disadvantages • Journal Entry • Examples Methods for Providing Depreciation Straight Line Method Reducing Balance Method Sum of Years of Digits Method Annuity Method Sinking Fund Method Insurance Policy Method Machine Hour Method Production Unit Method Methods of Depreciation Formula Rationale Advantages Disadvantages Journal Entries Ledger ExampleRead More
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FAQs on PPT : Depreciation Accounting - 2 - Accountancy Class 11 - Commerce
| 1. What is depreciation accounting? |  |
Ans. Depreciation accounting refers to the process of allocating the cost of a tangible asset over its useful life. It is used to account for the wear and tear, obsolescence, or other factors that cause a decrease in the value of an asset over time. This method helps businesses accurately reflect the decrease in value of their assets in their financial statements.
| 2. How is depreciation expense calculated? | |
Ans. Depreciation expense is calculated using various methods, such as the straight-line method, declining balance method, or units of production method. The most common method is the straight-line method, which divides the cost of the asset by its useful life to determine the annual depreciation expense. For example, if an asset costs $10,000 and has a useful life of 5 years, the annual depreciation expense would be $2,000 ($10,000 / 5).
| 3. Why is depreciation important in accounting? | |
Ans. Depreciation is important in accounting for several reasons. Firstly, it helps in accurately matching the cost of an asset with the revenue it generates over its useful life. Secondly, it allows businesses to allocate the cost of an asset over time, which helps in determining the true profitability of the business. Lastly, depreciation also helps in estimating the value of an asset for insurance or resale purposes.
| 4. What is the impact of depreciation on financial statements? | |
Ans. Depreciation has a significant impact on financial statements. It reduces the value of an asset on the balance sheet, which in turn decreases the overall net book value of the assets. This reduction in value affects the profitability of the business by increasing the depreciation expense on the income statement. Additionally, depreciation also affects the cash flow statement, as it is a non-cash expense that is added back to the net income during the calculation of operating cash flow.
| 5. Are there any tax benefits associated with depreciation? | |
Ans. Yes, there are tax benefits associated with depreciation. In many countries, businesses are allowed to deduct the depreciation expense from their taxable income, which reduces their tax liability. This deduction helps businesses in lowering their taxable income and ultimately paying less in taxes. However, it is important to note that there are specific rules and guidelines set by tax authorities regarding the calculation and deduction of depreciation for tax purposes.
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