Page 130 - DCOM101_FINANCIAL_ACCOUNTING_I

Financial Accounting-I

Notes 11.2 Journal Entries and Ledger Accounts

There are two methods to record the depreciation on fixed assets in the books of the owner:

1. When provision for depreciation account is maintained: Under this method, the amount
of depreciation each year is transferred to the provision for depreciation account and the
assets are shown in the books at their original cost. And when an asset is sold on the expiry
of its useful life, sales proceeds of the assets and the amount of provision for depreciation
is transferred to the assets account. Profit or loss arises from the sale of the assets is carried

to profit and loss account. Under this method the following journal entries are passed in
the books of owner:
(a) When depreciation is charged on Assets:
Depreciation Account Dr.
To Provision for Depreciation Account
(b) When depreciation is transferred to P & L Account:
P. & L. Account Dr.

To Depreciation Account
(c) When assets are sold on the expiry of useful life of the assets:
Provision for Depreciation Account Dr.
To Assets Account

(d) If there is any profit on the sale of Assets:
Assets account Dr.
To P & L Account
(e) If there is any loss on the sale of assets:
P & L Account Dr.

To Assets Account
2. When Provision for Depreciation Account is not Maintained: In this case the depreciation
on the assets is not transferred to the provision for depreciation account, but that is
transferred to assets account and the assets are shown at the written down value (cost of
assets minus depreciation) in the balance sheet. Depreciation is treated as an expense and is
transferred to the profit and loss account. Under this method the following journal entries

are passed in the books of the owner:
(a) When depreciation is charged on Assets:
Depreciation Account Dr.
To Assets Account
(b) When depreciation is transferred to the P & L Account:
P & L Account Dr.

To Depreciation Account
(c) If the assets are sold at profit on the expiry of the useful life of Assets:

Cash Account Dr.
To Assets Account
To P. & L. Account

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