Page 128 - DCOM101_FINANCIAL_ACCOUNTING_I

Financial Accounting-I Manpreet Kaur, Lovely Professional University

Notes Unit 11: Depreciation Accounting

CONTENTS

Objectives
Introduction
11.1 Meaning of Depreciation
11.2 Journal Entries and Ledger Accounts
11.3 Methods of Charging Depreciation

11.4 Straight Line Method
11.5 Written Down Value Method
11.6 Summary
11.7 Keywords

11.8 Self Assessment
11.9 Review Questions
11.10 Further Readings

Objectives

After studying this unit, you will be able to:
z Describe the meaning of depreciation
z State the methods of depreciation
z Compare straight line and written down value method

Introduction

Depreciation accounting is mainly based on the concept of income. The concept of income is
matching of revenues with expenses. The goods purchased are frequently matched through
immediate sale or within a year. The crux of the concept of income is that the expenses are to
be matched against the revenues. The ultimate aim of matching is done in order to determine
the volume of profit or loss of the transaction. If the assets are nothing but long term assets

procured by the enterprise, they should be matched against the revenues of them. The matching

of expenditure of the assets incurred by the firm at the time of purchase against the revenues is
the core task of the fi rm.
?

Did u know? Why is it being considered as a cumbersome task in matching?

The benefits/revenues of the fixed assets are expected to accrue for many numbers of years
but not within a year. The initial investment on the assets at the time of purchase should

be matched against the revenue pattern of the same year after year in order to find out the
profitability of the long term investment.

To have an effective matching against the revenues on every year, the amount of purchase has to
be stretched. The stretching of expenses into many years is known as depreciation.

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