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Depreciation

mridul savio Pinto (articled trainee ) (1477 Points)

23 September 2011

its given in the trial balance the provision for depreciation as a credit balance ... and when the fresh depreciation is charged on it ... whether we should add to that or deduct from it ??

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CA ADITYA SHARMA (CA IN PRACTICE ) (16719 Points)
Replied 23 September 2011

add

srinivass (CA Final) (2466 Points)
Replied 23 September 2011

we can add that additional balance

1 Like

Prakash (Chartered Accountant) (560 Points)
Replied 23 September 2011

Understand the concept first

Generally when you charge depreciation on fixed assets, you will pass the entry like this

Depreciation A/c

to Fixed Assets A/c

And you will transfer the Depreciation so charged to Profit and Loss Account A/c

Profit and Loss A/c

To Depreciation A/c

By this Fixed Assets are reduced by the extent of Depreciaion Provided. In future if you want to know the original amount of a Particular Asset, it is difficult to derive as they were restated every year 'cause of depreciation

So, inorder to Carry the Assets at original Value some organisations will account for depreciation like this

Depreciation A/c

To Provision for Depreciation A/c (Insted of Fixed Assets)

This Provision for Depreciation being a Credit Item will be shown in Balance sheet on liability Side or it can be shown as a dedution from Fixed Assets. This Provision for Depreciation will be accumulated with every year depreciation

Now your Question

It is given in trail balance Provision for Depreciation as Credit Balance - Obviosly it is credit only

When a fresh Depreciation is charged-- That will be added to Existing Balace

As the Entry for Fresh Depreciation

Depreciation A/c

To Provision for Depreciation A/c ( Again Credited)

6 Like

valji (Accounts manager-MBA) (2150 Points)
Replied 23 September 2011

agreee with above add additional balance

1 Like

Akhil Sharma (Service) (141 Points)
Replied 23 September 2011

Very nicely explained by Mr. Prakash. Agreed.

1 Like

mehul (ca final student) (83 Points)
Replied 23 September 2011

nicely explained

Mahender babu (article clerck) (44 Points)
Replied 23 September 2011

Very Good explination Boss..............

1 Like

Prakash (Chartered Accountant) (560 Points)
Replied 23 September 2011

Thanq Mates

Alan Angels Augustine (STUDENT PCC) (62 Points)
Replied 23 September 2011

Provision for depreciation is credit balance account.

In order to carry the asset in its original value, a depreciation fund / provision for depreciation account will be created, which will show credit balance. So the entry will read as

Depreciation a/c Dr

To Depreciation Fund a/c

Each year depreciation will be further added to the same and depreciation fund account will show accumulated balance of depreciation charged till the date of B/s.

For the year depreciation will be charged to P&L account by passing the following entry,

Profit & Loss a/c Dr

To Depreciation (for the year)

Now, on sale of the particular asset the depreciation fund created has to be reversed. Assuming profit on sale of asset then the entry would read as,

Bank a/c dr

Depreciation fund a/c dr

To Asset a/c

To Profit on sale of asset a/c

Hope u understood...

4 Like