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provision for depriciation

jim (abc) (309 Points)

08 November 2009

Hi.

Is provision for depriciation current liability?

If yes then will it find place in current ratio as current liability.

Thanks

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10 Replies

kabirsen (student) (251 Points)
Replied 08 November 2009

no its not current liability as per schedule 6 of co. act....

Tarun Poddar (CA FINAL) (233 Points)
Replied 08 November 2009

provision for depriciation wont b considered as current liability and it wont b considered while calculating current ratio..

jim (abc) (309 Points)
Replied 09 November 2009

thanks for the answers.

But then what will it be under Balancesheet? like stock comes under current assets and preliminary exp under miscellaneous exp, what will provision for depriciation come under?

kabirsen (student) (251 Points)
Replied 09 November 2009

provisions and current liabilites

jim (abc) (309 Points)
Replied 10 November 2009

thanks.

good day.

mallela.ravikiran (learner) (136 Points)
Replied 10 November 2009

provision for depreciation should be deduct from gross block of asset, if you show gross block it is like window dressing ...

(Guest)

Actually depreciation is the amount we charge on asset for their usage. Actually it is expenses which i have paid already by buying fixed asset and consuming it over a period. So what ever the cost which i consumed should go to reduce the asset value because the asset is no more valued at their purchase cost. But i don't exact what was the cost i consumed during the period. So when we don't know its exact quantum we create provision.

But in financial statement we will show it as

Gross Block of asset : Cost of the asset

Less : Depreciation block : Provision for depreciation

Net block: : WDV.

Pankaj (Article ) (37 Points)
Replied 03 February 2010

why we need to maintain Provision for depreciation Account.We can also reduce our Fixed block of assets by such depreciation amount then why we are routing it through provision.Is it compulsorry? if yes then what is the advantage of it?

(Guest)

Fixed Asset should be shown at original cost as per schedule VI of companies act 1956. It is statutory obligation.

So we are maintaining provision for depreciation seperately instead of writing it of.

Another view :

Depreciation is charged as percentage on original cost or WDV. We dont know the exact utilisation of fixed asset during the year. So Prosions are created when we don't know the exact expenditure and kept as provision until we come to know its exact utilisation (no at all possible). So we will kept it till particular assets is sold or destructed and written off at the time of sales or destruction.