Accounting Standard :- 6 Depreciation Accounting

Introduction :Depreciation is provided by an organization on fixed assest. Fixed assest which expected to be used for more than one accounting period and have a limited useful life and are held by the entreprise in the production or supply of good and services.
1

Depreciation Accounting AS 6
The depreciable amount is allocated to various accounting periods by an enterprise in different ways. Each enterprise has its own deprecation accounting policy. Disclosure of accounting policy followed with respect to depreciation is essential to appreciate the view presented in the financial statement of the enterprise.

Non Applicability of AS 6
Forests, plantations and similar regenerative natural resources. Wasting assets such as expenditure on exploration for mineral, oils, and natural gas. Expenditure on research and developments. Goodwill. Live stock. Land unless it has a limited useful life for the enterprise.

Method of Depreciation
There are two main methods of deprecation:A) Straight Line Method (SLM) :B) Written Down Value Method (WDVM) :-

Calculation of Depreciation:SLM = Original cost Estimated scrap value / Estimated useful of life.

WDVM = Depreciation rate is given.

Illustration :X Ltd. Purchases a computer for Rs.1,00,000 which has an estimated three year useful life. At the end of the period it is expected to have a value of Rs.10,000.

( WDVM depreciation at 10% per annum)

Solution

SLM

SLM = Original cost Estimated scrap value / Estimated useful of life. SLM = 1,00,000 -10,000 / 3 SLM = 90,000 / 3

SLM = 30,000

Solution WDVM
WDVM = (1,00,000) 10 / 100 WDVM = 1000000 / 100 WDVM = 10,000