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DEPRECIATION SRIMAD ANDAVAN ARTS AND SCIENCE COLLEGE PowerPoint Presentation

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On : Jan 08, 2015

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  • Slide 1 - DEPRECIATION
  • Slide 2 - The word “depreciation” is derived from Latin word Depretium. It means de means decline and pretium means price. Thus it means decrease in the value of fixed or capital assets. Definition: B.G. Vickery defines it “permanent decrease in the value of an asset through wear and tear in use , or passage of time”. DEPRECIATION:
  • Slide 3 - Original cost of the asset: The original cost of the asset means money spent for acquiring, installing, commissioning the asset and subsequent addition or improvement cost associated therewith. Estimated Residual Value of the asset: After the asset ceases to be of use it is disposed of. But it may have some realisable value, even if it is a junk. The amount of scrap value is to be estimated at the time of acquisition of the asset. MEASURES OF DEPRECIATION
  • Slide 4 - Expected useful life of the asset: Having decided on the total amount to be written-off over several years, one must also set limit on periods within which the total amount is to be wiped off. whatever be the allocation of depreciable amount for any accounting year, it is to be ensured that the total amount of depreciation is written off within a period of estimated useful life of the asset. MEASURES OF DEPRECIATION
  • Slide 5 - Fixed Instalment Method The Reducing Instalment Method The Depreciation Fund Method The Annuity Method Insurance Policy System Revaluation Methods of providing depreciation
  • Slide 6 - The Use Or Mileage Method Efficiency Hours Method Global Method Production Unit Method Depletion Unit Method Single Charge Method Methods of providing depreciation
  • Slide 7 - Fixed Instalment Method: It is also called by different names as straight line method, Original cost method . Under this method a % of the original cost of the asset concerned less the residual value, if any, is written off every year till the end of its estimated life. Methods of providing depreciation
  • Slide 8 - The Reducing Instalment Method: This method is also known as Written Down Value Method Or Diminishing Method, Declining Balance Method. Under this method a fixed percentage is written off every year on the diminished book value of the asset till the asset is reduced to its scrap value. Methods of providing depreciation
  • Slide 9 - The Depreciation Fund Method: This method is also known by Redemption Fund Method, Amortization Fund Method, Sinking Fund Method. Under this method, an equal amount is written off every year and the Profit and Loss account is debited while the Depreciation Fund account is credited during the estimated life of the asset. Methods of providing depreciation
  • Slide 10 - The Annuity Method: This method of Depreciation is provided where it is also desired to retain the money in the business. Under this system, it is supposed that the money invested in the purchase of the asset earns interest at a fixed rate. Methods of providing depreciation
  • Slide 11 - Insurance Policy System: According to this system, an endowment insurance policy is taken on the life of the asset. The advantage under this system is that the company need not worry whether the investments, as under the Depreciation fund Method, will be sold at their face value or not. Methods of providing depreciation
  • Slide 12 - Revaluation: Where it is not possible to provide for depreciation on mathematical basis, the asset is revalued at the time of the balance sheet, e.g., in the case of loose tools, livestock, jars, bottles, packages, patterns, jigs, etc., i.e., assets which have short life. Methods of providing depreciation
  • Slide 13 - The Use Or Mileage Method: The method is applied in the case of those assets the use of which can be measured in terms of time, e.g., a car, bus, a motor cycle, etc., Methods of providing depreciation
  • Slide 14 - Efficiency Hours Method: This method of depreciation is also known by different names such as Machine –hour Method, Unit of Production, Hours of service Method. Under this method, instead of counting the life of the asset in miles, it is estimated in terms of working hours. Methods of providing depreciation
  • Slide 15 - Production Unit Method: Under this method the depreciation is provided according to the number of units of the goods manufactured. It is just like Efficiency Hours Method. Global Method: under this method the depreciation is provided according to the rate of depreciation is charged. The method is very scientific and should not be adopted. Methods of providing depreciation
  • Slide 16 - Depletion Unit Method: This method is used in case of wasting assets such as mines, quarries, oil wells etc. The contents of the mine are estimated in terms of tons, gallons, etc. Taking into consideration the cost of the mine, the value of one ton of the mineral raised is calculated. Methods of providing depreciation
  • Slide 17 - Single Charge Method: Under this method a definite sum of money representing a proper proportion of the total amount of depreciation and repairs over the life of the asset is debited to revenue account and credited to a Depreciation and Repair Reserve Account. Methods of providing depreciation

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