Depreciation-cash system of a/c -pur of asset on installment

Since the CAPITAL ASSET has been purchased it means that the OWNERSHIP has been transferred even though it has been purchased on INSTALLMENT BASIS . Hence the Depreciation has to be charged on the COST of the CAPITAL ASSET . Since it has been purchased in OCTOBER 1/2 year depreciation will be allowed to be deducted from cost to arrive at WDV . In case the CAPITAL ASSET would have been purchased on HIRE PURCHASE BASIS then the depreciation would have been applied on the total amount paid including INTEREST ....

under cash system of Accounting there will be a entry of cash inflows and out flows. hence in this case only entry of cash part will be done. ie.

Assets A/c Dr..............................(Principle)

Interest A/c Dr............................(Interest Paid)

                      To cash / Bank

Under Cash Accounting

It does not provide the complete picture of the financial position i.e. information on assets and liabilities are not available for fixed assets (land, building, machineries, defence, heritage assets etc.). hence current depreciation can not be calculated.