depreciation final - MEANING OF DEPRECIATION With the...

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MEANING OF DEPRECIATION With the exception of land, all fixed assets have a limited useful life. When a fixed asset is put to use, a part of it’s value is lost and can’t be recovered. Such a loss in value of an asset is known as an depreciation. Depreciation is a gradual decrease in the value of a fixed asset from wear and tear ,exhaustion , obsolescence, etc. According to AS-6 ”Depreciation is a measure of wearing out consumption or other loss of value of depreciable asset arising from use, effluxion of time or obsolescence through technology and market changes. Depreciation is allocated so as to charge a fair proportion of the depreciable amount in each
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Depreciation § Depreciation is the method used to spread the cost of a purchase (normally of a fixed asset) over a number of time periods (usually years) This is a way of charging to the business the cost of the asset, in a way which accounts for the ‘wear and tear’ of the asset, and the fact that over time it is reducing in value. Depreciation is shown in the Profit & Loss Account as an Overhead
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NEED FOR PROVIDING DEPRECIATION 1. To ascertain true income. 2. To show true and fair view of financial position. 3. To ascertain the correct cost of production. 4. To provide funds for replacement of assets. 5. To comply with legal requirements .
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Calculating a depreciation charge Factors to be considered Cost of the asset Useful life of the asset Residual value of the asset Depreciation method The depreciation charge is calculated as a result of these four factors: § Initial Cost § How long it will be used for § What it will be worth at the end § Calculation method
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less Residual value equals Cost Depreciable amount Annual depreciation charge Year 1 Year 3 Year 2 Year 4 and so on Calculating an annual depreciation charge Whatever method is used, the procedure is the same:
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DISCLOSURE OF DEPRECIATION IN FINANCIAL STATEMENTS Depreciation is one of the most significant information to be disclosed in financial statements . AS-6 requires that the following information in respect of
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depreciation final - MEANING OF DEPRECIATION With the...

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