Topic:- DEPRICIATION OF FIXED ASSESTS

NAME: TUSHAR SHAH

SUBJECT: ACCOUNTING
DEPARTMENT: BBA
UNIVERSITY ROLL NO: 22641923245
Introduction to Depreciation of Fixed Assets
Depreciation of fixed assets is the allocation of the
cost of a tangible asset over its useful life. This
process allows businesses to account for the
reduction in value of their assets over time.
Definition of Depreciation
Allocation of Cost
Depreciation is the process of allocating
the cost of a tangible asset over its useful
life.
Accounting for Wear and Tear
It accounts for the wear and tear,
deterioration, or obsolescence of the asset.
Financial Reporting
It is essential for accurate financial
reporting and taxation purposes
Types of Depreciation Methods
Straight-Line
Allocates an equal amount of depreciation
each year over the useful life of the asset.
Declining Balance
Calculates accelerated depreciation by
applying a fixed rate to the book value of
the asset.
Units of Production
Depreciates assets based on their usage or
output, rather than the passage of time.
Explanation of Straight-Line
Depreciation Method
Equal Depreciation
Divides the depreciable base of an asset
equally over its useful life.
Simple Calculation
Easy to calculate and widely used due to
its simplicity.
.

Example of Straight-Line Depreciation

Calculation
Depreciation Expense
Example: $20,000 / 5 years = $4,000 per
year.
Book Value
Example: $20,000 - $4,000 = $16,000.
.

Explanation of Declining Balance

Depreciation Method
Accelerated Depreciation
Front-loads higher depreciation expenses
in the early years of an asset's life.
Reducing Book Value
The depreciation expense decreases over
time as the book value of the asset
decreases.
Example of Declining Balance
Depreciation Calculation
Year 1 $20,000 * 0.2 = $4,000
Year 2 ($20,000 - $4,000) * 0.2 = $3,200
Conclusion and Summary of Different
Types of Depreciation Methods
Essential Accounting Practice
Depreciation is a crucial aspect of financial
accounting and reporting.
Choose Methods Wisely
Businesses should carefully consider the
type of depreciation method that best
represents their asset's usage and value
decline.
Impact on Financial Statements
Each method influences the financial
statements and tax obligations differently,
impacting profitability and tax liability.