Depreciation & it’s TYPES

By SHASHANK SALVEMMS 2ND SEMROLL NO. 61

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A reduction in the value of an asset with the passage of time, due in particular to wear and tear.

Decrease in the value of a currency relative to other currencies.

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Defined :- 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.

A business expense that reduces annual profit.

A reduction in the value of an asset.

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Examples:

vehicles, machinery, equipment, building, fences, purchased breeding livestock, wells.

A useful life of more than one year.

A determinable useful life but not an unlimited life.

Cost :- The price paid for the asset.

Useful life :- Number of years the asset is expected to be used in business.

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1) Straight Line method.

2) Reducing balance method.

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i. It is Also Known as fixed installment method.

ii. Every year during the useful life of asset, depreciation is calculated as certain fixed percentage of original cost of asset

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i. It is also known as write down value method.

ii. This method depreciation is charged at certain percentage on original cost in the first year and subsequently on opening written down value of an asset every year.

iii. This amount of depreciation changes every year and it goes on reducing.

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i. A depreciation schedule is a necessary part of any accounting system.

ii. Depreciation is an expense used to calculate profit, and depreciation reduces the value of assets.

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