07 November 2016
Can you please put in words your EXACT difficulty? It seems that DEPRECIATION per se is bothering you a lot. Please tell me what has gone wrong with you regarding depreciation? Are you in a position to ACCEPT the distinction between REVENUE expenditure vis a vis CAPITAL expenditure? Please write in detail...you are asking the same questions on depreciation, time and again......Let us try to satisfy your query once and for all....please go ahead.
09 November 2016
Some Organisation maintains the provision for depreciation and some others are accumulated depreciation what is accumulated depreciation and provision for depreciation? what is the difference between these two
09 November 2016
01. The accounts that reduce the balance of ASSET is termed as Contra Asset Account. 02. The terms "Accumulated Depreciation" AND "Provision for Depreciation" are used interchangeably. 03. Accumulated depreciation gives the figure of depreciation charged so far. The word "Provision" is normally used for that particular year. What else you need, please write back
10 November 2016
Thank you Amol as you said the accounts that reduce the balance of asset is termed as a contra asset so we treat the accumulated depreciation as contra asset? if yes, so the accumulated depreciation will come under the parent head fixed asset, I mean is this correct reason? and What is the parent head of Provision for depreciation? Please advise.
10 November 2016
and one more no knock off of accumulated depreciation a/c @ the year end because I heard that contra asset has only credit balance or zero balance please explain about this
10 November 2016
See, there is always a great amount of discussion on "Disclosure" and "Accounting head and Group" While "depreciation" being a nominal account finds its place in Profit & Loss A/c "Provision for depreciation" ideally should be grouped under "provisions", but for disclosure purposes, it is shown below asset and the net figure is shown in outer column of the balance sheet
10 November 2016
Due to Tally software (Thanks to Tally actually)......many a people have started asking the GROUP of the account. For Provision / Accumulated depreciation, if we give the GROUP as "provision" then tally shows it under "current liabilities & provisions. Ok? So, people have started grouping "Accumulated depreciation a/c" under fixed asset...so that the same is shown by Tally, in asset side..... Tell me your review now
13 November 2016
every month we show the reduction in the value of the asset? if we maintain the accumulated depreciation account?
because proviosion and accumulated are used as interchange if provision for depreciation is maintained because For calculating correct profit or loss on fixed asset at the end means we transfer depreciation to prvision for depreciation and not for assset A/c every month so there is no reduction in the value of asset every month Is this correct?
Just I wanted to make this topic clear so I am asking more questions please don't mind
13 November 2016
A. Not at all, in fact I am encouraging you to ask more and more questions so that the query as well as fear, if any, of the topic would get over. Depreciation is a very important topic. With the inclusion of IFRS, it has become more important.
B. The normal practice is that the depreciation is charged at the end of the year. But thanks to computerisation, many a softwares have started calculating the same on daily or weekly or monthly basis, (As per the programme)
C. The reduction in the value of asset is entered as follows debit depreciation credit provision for depreciation. (Now focus on depreciation account. The depreciation A/c is grouped under "indirect expenses". It is, thus, charged off to Profit & Loss A/c. As said in one of my earlier responses, DISCLOSURE is the key factor.) Please concentrate Let us take one numerical example..... Asset value 100 depreciation @ 10%......10 So entry would be debit depreciation 10 credit provision for depreciation 10 ok? depreciation a/c of 10 would be deducted from Profit & Loss A/c. Under asset, what is shown is Asset . . . . . . . . . . . . . . . . . . . 100 Less: Provision for Asset ........10 Net value of Asset. . .. . . . ... .90 Now tell me what is your next difficulty? Please feel free to communicate. No problem.
14 November 2016
I agree for the above advise But every month we show the reduction in the value of the asset if we maintain the provision for depreciation or accumulated depreciation? because the reason is to maintain the provision, is we do not deduct every month (at the end of the year we calculate) in the value of the asset to find the correct profit or loss of the asset value if the organisation decides to sale of that asset or it may continue after one year also Please advise every month how it will effect to the asset, whether decrease in the value or not?
14 November 2016
It seems that I am not able to understand your EXACT difficulty and the REASON of such difficulty. Anyway, I would like to ask you a simple question. Please answer the same. On 01/11/2016, Mr. A buys a car of 10 lakh. On 02/11/2016, Mr A decided to sell the said car. What do you think, will Mr A get a. 10 lakh, b. more than 10 lakh or c. less than 10 lakh.
17 November 2016
Thank you for the answer. Please note as you talk personal it becomes universal. Because universe is made up of persons. Ok? What sounds ok for you so far as "personal use" is concerned, in above example, holds equally CORRECT for industrial/commercial use as well. Take for example, the furniture work is done by a company; amounting to 250,000/- After 15 days the said company wants to sell the same......will it fetch 250,000? or less than 250,000 OR more than 250,000/- (The answer is same as you gave for car - personal use-) Barring few exceptions like LAND,Gold, Jewellery etc. the asset value deteriorates over a period of time. Are you able to digest this?..... Now, therefore, IFRS has come up with a simple formula for depreciation (Please note the simple things are very difficult to understand) It says depreciation = (original cost of asset - expected residue/scrap value of the said asset)...this is to be spread over the period of economic life of that asset. Now please tell me what is your next difficulty in this
1.Depreciation is decrease in the value of an asset due to wear and tear- Correct?
2.The JE for this is Depreciation A/c Dr To Asset A/c - Correct?
3.All the expenses will be debited to P&L A/c the JE for this is P&L A/c Dr To Depreciation A/c Cr Correct?
4. So from this(2 &3) we can understand in Balance sheet we see the Asset-Depreciation=Net value of an asset and we see the Depreciation in the P&L A/c Debit side Finally the Depreciation A/c will knock off - Correct?
If you say the above points are correct than we can go for further discussion
21 November 2016
Yes. You are Correct. Let us please proceed for further discussion. (I think it is leading to Depreciation Fund....it is just a wild guess...please dont bother for the same....) Please proceed.
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