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DEPRICIATION

DEPRICIATION. CONTENTS WHAT IS DEPRICIATION WHY WE PROVIDE DEPRICIATION CAUSES OF DEPRICIATION FACTORS INFLUENCING THE DEPRICIATION METHODS FOR CALCULATING DEPRICIATION AMOUNT. WHAT IS DEPRICIATION.

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DEPRICIATION

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  1. DEPRICIATION CONTENTS • WHAT IS DEPRICIATION • WHY WE PROVIDE DEPRICIATION • CAUSES OF DEPRICIATION • FACTORS INFLUENCING THE DEPRICIATION • METHODS FOR CALCULATING DEPRICIATION AMOUNT

  2. WHAT IS DEPRICIATION • All assets whose benefit is derived for a long period of time, usually more than one year period are called as fixed assets. • These assets decrease in value year after year due to wear and tear or lapse of time. This reduction in value of fixed assets is called depreciation. • Depreciation is permanent and continuous decrease in the book value of fixed asset due to use, effluxion of time , obsolescence, expiration of legal rights or any other cause.

  3. SOME STANDARD DEFINITION • In the word of Spicer and Pegler, “Depreciation is the measure of the exhaustion of the effective life of an asset from any cause during a given period”. • Carter defines depreciation as “the gradual and permanent decrease in the value of an asset from any cause”. • According to the ICMA terminology “Depreciation is the diminution in intrinsic value of asset due to use and/lapse of time.

  4. WHY WE PROVIDE DEPRECIATION • To ascertain correct profit/loss • To ascertain the real cost of production • To comply with legal requirements • To replace assets

  5. CAUSES OF DEPRECIATION

  6. FACTORS INFLUENCING THE DEPRECITION • Original cost of the asset – it implies the cost incurred on its acquisition, installation , commissioning, and for additions or improvements thereof which are of capital nature. • Estimated life – it implies the period over which an asset is expected to be used. • Residual value – it implies the value expected to be realized on itssale on the expiry of its useful life. This is otherwise known as scrap value or turn-in value

  7. METHODS OF CALCULATING DEPRECITIAON • STRAIGHT LINE METHOD • DIMINISHING BALANCE METHOD • ANNUITY METHOD • DEPRECITION FUND METHOD • INSURANCE POLICY METHOD • REVALUATION METHOD

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