PPT on Depreciation.ppt

PPT on Depreciation.ppt

• 1.
  AS-6 DEPRECIATION ACCOUNTING Ranjith Kanduri
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  Introduction: • The AccountingStandard deals with depreciation accounting and applies to all depreciable assets. • Depreciation is allocated so as to charge a fair proportion of depreciable amount in each accounting period during expected useful life. • This standard is inextricably connected with another standard AS-10
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  Applicability of AS-6 AS-6is applicable to all depreciable assets, except the following: ✓ Forests, Plantation and other similar regenerative natural resources ✓ Wasting Assets ✓ Expenditure on R & D ✓ Goodwill ✓ Live-stock ✓ Land – unless it has limited life
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  Meaning: • Depreciation meansdecline in the value of depreciable assets on account of use and effluxion of time. • Depreciation is a gradual, continuous & permanent decrease in the value of an asset. Timeline: 1984: Introduced 1994: Revised 1995: Applicable to Non-Corporates as well.
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  Definition: • AS-6-Para3, DepreciationAccounting defines depreciation as a measure of the wearing out, consumption or other loss of value of a depreciable asset arising from use, effluxion of time or obsolescence through technology or market changes. • Depreciation includes amortization of assets whose useful life is predetermined. Amortization is a phrase used for Intangible assets.
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  Depreciable Assets Depreciable Assetsare those assets which: ✓are expected to be used for more than 1 accounting period. ✓Have a limited useful life. ✓Are held for the purpose of production of goods & services and NOT for sale in the ordinary course of business
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  10 Depreciable Amount Historical Cost or Other Amount substitutedfor HC Estimated Residual Value Estimated Useful Life (Years ) Depreciable Amount Amount of Depreciation Usually following three factors help assess Depreciation How to Calculate Depreciation
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  Features & Causes ❑Featuresof Depreciation ❑Depreciation is a part of operating cost. ❑It is a reduction in the value of an asset. ❑The decrease in the value of an asset is gradual & continuous. ❑ Causes of Depreciation ❑Physical wear & tear ❑Physical Deterioration ❑Expiry of legal rights ❑Obsolescence
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  Methods of Depreciation: ✓FixedInstallment Method ✓Reducing Balance Method ✓Sinking Fund Method ✓Insurance Policy Method ✓Sums of the digit Method ✓Revaluation Method ✓Depletion Method ✓Machine Hour Rate Method ✓Replacement Method
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  Changes in DepreciationMethod ➢Method of depreciation once selected consistently applied. ➢Change in method of Depreciation is done in the following conditions: ➢For compliance of status ➢For compliance of AS’s ➢For more appropriate presentation of the financial statement
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  Change in AccountingPolicy OR Change in Estimates 24 ➢A Change in Method of Depreciation is treated as a Change in …?? A change in accounting policy , and changes in accounting policy is accounted for retrospectively
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  How Change inMethod is accounted for ? Retrospectively. There arises either a surplus or deficiency when such recalculation is made. In case of Surplus: Its credited to the Statement of profit and loss In case of Deficiency: Its charged to the Statement of profit and lo . 25 Depreciation is Re-calculated in accordance with the new method
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  Changes in EstimatedUseful Life 16 If it is considered that the original estimate of useful life of an asset requires any revision. The unamortized depreciable amount of the asset is charged to revenue over the revised remaining useful life. Thus , the effect is Prospective and NOTRetrospective
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  Change in otherfactors 1. Change in Historical Cost • Depreciation is calculated prospectively over Residual useful life 1. Revision in Useful life • Unamortised depreciation charged over REVISED remaining useful life 1. Addition or extension in the asset - 26
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  Depreciation on Addition/Extension • Any addition or extension becomes an integral part of the existing asset. Hence it is depreciated over the remaining useful life of the asset.
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  Materiality ➢Depreciation fully allocatedin same accounting period when the asset does not have a material value. !!! ➢This in other words , remaining net 17 bookvalue Depreciation. is fully charged as The asset is effectivelyde-recognised.
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  Disclosures The related accumulateddepreciation. Total depreciation for the period of each class of assets, Historical cost or other amount substituted for Historical cost of each class of depreciable assets;
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  Additional disclosures Following informationshould also be disclosed along with disclosures of other accounting policies: •Depreciation methods used, and •Depreciation rates or useful lives of the assets (if they are different from the principal rates specified in the statute governing the enterprise e.g: Companies Act, 1956)