Depreciation
This query is : Resolved
20 November 2008
Please explain
“Which method of depreciation is relevant in financial accounting in current scenario and why”?
“Which method of depreciation is relevant in financial accounting in current scenario and why”?
20 November 2008
Wdv method of Accounting is suitable.The reason is intial period asset is new will be more effective than that of later point of time.
20 November 2008
Dear Raj,
Since you are asking from Accounting Angle, I am answering to this question. Once again remaining to you that i am not discussing from Taxation point of View.
As per accounting standard, nowhere they defined that only WDV is suitable for all assets. In standards they simply told either of SLM or WDV can be used. It all depends upon the nature, type, circumstances etc.. of the asset. The option is left to you.
Take the case of Intangible assets like patents, copyright etc.
In some/most of these cases, income from these assets[intangible like patent etc.] will be equal throughout the life of the asset. Since income is equal, expenditure should also be equal. Then only we can say that there is matching concept. Or else you are violating the basic concept of accounting.
To be precise, for assets which have equal income throughout the life of the asset, we may follow SLM basis. For other assets like building, machinery etc. for which we cannot expect/predict income to be same for every year throughout their life. Therefore, WDV may be adopted.
Straighaway nobody can come to a conclusion that only WDV should be followed since nowhere they stated in Accounting Standards.
Since you are asking from Accounting Angle, I am answering to this question. Once again remaining to you that i am not discussing from Taxation point of View.
As per accounting standard, nowhere they defined that only WDV is suitable for all assets. In standards they simply told either of SLM or WDV can be used. It all depends upon the nature, type, circumstances etc.. of the asset. The option is left to you.
Take the case of Intangible assets like patents, copyright etc.
In some/most of these cases, income from these assets[intangible like patent etc.] will be equal throughout the life of the asset. Since income is equal, expenditure should also be equal. Then only we can say that there is matching concept. Or else you are violating the basic concept of accounting.
To be precise, for assets which have equal income throughout the life of the asset, we may follow SLM basis. For other assets like building, machinery etc. for which we cannot expect/predict income to be same for every year throughout their life. Therefore, WDV may be adopted.
Straighaway nobody can come to a conclusion that only WDV should be followed since nowhere they stated in Accounting Standards.
20 November 2008
I agree with Mani's view.
20 November 2008
Further, In economics, depreciation is the decrease in the economic value of the capital stock of a firm, nation or other entity, either through physical depreciation, obsolescence or changes in the demand for the services of the capital in question. If capital stock is C0 at the beginning of a period, investment is I and depreciation D, the capital stock at the end of the period, C1, is C0 + I - D.
20 November 2008
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