13 January 2022
Depreciation reserve is a business fund in which the probable replacement cost of equipment is accumulated each year over the life of the asset. Accumulated depreciation is total depreciation charged over the life of the asset based on historical cost.
15 January 2022
Resp Sir i could not understand. Kindly clarify. what i know is that, at the time of charging depreciation, the amount of depreciation, instead of deducting from Fixed Assets, is credited to Accumulated depreciation and shown in liability. In google, i found that when accumulated depreciation is invested some where it is called as depreciation reserve. It has becomes very complex and i am fully confused on it. Would be grateful, if u could kindly break the concept of depreciation reserve and accumulated depreciation in a simple way. Thnx and regd
15 January 2022
Your understanding of accumulated depreciation is right. For replacement of the asset after the life of the existing asset funds are earmarked and kept aside for which reserve is created based on replacement cost.
15 January 2022
Accumulated depreciation is used to write off the asset from the books of accounts when asset served it's life or on it's disposal. Depreciation reserve is used to buy new assets in case of replacement.
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