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Deprociation effect on balance sheet

02 November 2011

Dear Friend

Please solve for me something. What is the effect of depriciation on balance sheet?? Lets say profit for this year is Rs. 100 and on the other hand asset is 80, depriciation is 20.

If i need to giv the effect of Profit and depriciation on this year end balance sheet, how the same will occur??? Depriciation will be deducted from asset and on the other what thing will be deducted on liability side so that balance sheet tallies???

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5 Replies

CA RICHA BADALIA (CA,CS) (1682 Points)
Replied 02 November 2011

On the liability side profit will be reduced by Rs .20, which is the depreciation provided in PL.

Nitin Moudgil (~) (694 Points)
Replied 03 November 2011

but ma'm depriciation is already having depriciation deducted in P&L format??? why to deduct the same twice???? I am confused here only

akshat (owner) (57 Points)
Replied 03 November 2011

Originally posted by : Nitin Moudgil
	but ma'm depriciation is already having depriciation deducted in P&L format??? why to deduct the same twice???? I am confused here only

nitin !!! final !!! depriciation is a non cash expenditure ,whatever profit transactions u have done in year , its effect has gone into total assetsby creation of additional asssets in form of debtors,cash,investments or purchase of assets, so lets say if u dont charge depriciation and transfer whole Profit before depriciation to capital the B/S will tally anyways. but now since u r charging depriciation so assets wll reduce by that amount and so will the profits. so instead of full profit u will add (profit less depriciation) to capital..so value equivalent to depriciation has reduced from both the sides.

in ur case if 100 is profit before depriciation & F.A 80 is after depriciation,u deduct 20 from 100 and thus add 80 to capital / p&l, on liability side.

ashish gupta ( student) (1922 Points)
Replied 03 November 2011

you are right depreciation is already deducted in P&L Format. Its also already deducted from the asset.

First entry for depreciation

1. Depriciation A/c Dr.

To Asset A/c

2. P&L A/c Dr.

To Depreciation A/c

You dont actually deduct the depreciation from asset in balance sheet, its already deducted. you just show it there.

akshat (owner) (57 Points)
Replied 03 November 2011

firther if trial balance is tallied & u see deprication on debit side that means it is already charged for current year u just have to transfer it to p&l to get net profit