Accumulated Depreciation/Depreciation/Prov for Depreciation

Hi..

During the end of the year we pass depreciation entry by crediting Fixed asset a/c and debiting Depreciation a/c...and we show Written down value(WDV) in Balancesheet...

Depreciation A/c          DR

To Fixed Asset A/c

Some companies want to show Fixed asset at Original / Historical cost ,so they accumulate depreciation without actually crediting the Fixed asset...

Depreciation A/c                DR

To Depreciation reserve/Accumulated depn/Prov for depn A/c..

Here the Fixed asset is shown at Historical instead of WDV..

Depreciation is also accounted..

Depreciation reserve / Accumulated depn A/c on liabilty side shows a credit balance which should be deducted from Fixed asset  for Getting WDV...

Hope i cleared ur doubt..

Depreciation reserve / Provision for Depreciation Account / Depreciation Fund Account / Accumulated Depreciation Account all are the same, just they have different names.

The significance of all the three are same. Instead of showing the effect of depreciation directly onto the asset, the amount of depreciation will be credited to any of these accounts and will be shown on the liability side. On the asset side the fixed assets will be shown at Gross block.

Accumulated Dep and Prov. for dep are same. Only the names are different.

1. Depreciation : It is Charge for the year. It is debited to Profit and Loss A/c. and credited to prov for dep/accumualted dep. This is charge for the wear and tear of the assets.

2. Prov for Dep / Accumulated dep. : This is the accumulation of Dep of all the earlier years and including charge for the current year. All the dep charged from earlier years are accumulated in this account and it is deducted from the assets. This way the original cost remains intact and the written down value is shown after deducting this accumulated dep from the original cost of the asset.

Another way can be to directly deduct the depreciation from the asset and show written down value of asset. But since this is not permitted, above method is followed.

Hope i was able to clerify your doubts.

so, does that mean the asset is valued at book value/historical value in the balance sheet?

Hi Sachin

Accumulated Depreciation and Provision for Depreciation are terms used in place of each other. Depreciation is basically term with a broad meaning. Acc. Depreciation is the total amount of depreciation the asset(s) of a company have foregone from the date of purchase of such asset(s) till today. Whereas depreciation refers to the amount of depreciation the asset(s) of a company have foregone during a particular financial year. The same is charged to the statement of Profit and Loss every year. Hence we can say that there are two ways of accounting fixed assets :
1. Cost Method : Where the asset is maintained at its initial cost throughout its existence. Here, the amount of acc. depreciation is reflected in the liabilities side.
2. WDV Method : Where the asset is maintained at its written down value as on that date. There is no need to separatele mention acc. depreciation as the value shown itself indicates directly the present written down value of the asset.

Hi All, Thanks for all of your thoughts. Please advise when the below entry will be passed if Accumulated Depreciation method is followed:

Accumulated Depreciation...Dr

Fixed Assets account...................Cr

Why three names if significance is same