Page 228 - DMGT104_FINANCIAL_ACCOUNTING

Financial Accounting

Notes 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 & loss account. Under this method the following journal entries
are passed in the books of owner:
(i) When depreciation is charged on Assets:

Depreciation Account Dr.
To Assets Account
(ii) When depreciation is transferred to the P&L Account:
P&L Account Dr.

To Depreciation Account
(iii) 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
(iv) In the case of loss the following entry is passed:
Cash Account Dr.
P&L Account Dr.

To Assets Account

Self Assessment

Fill in the blanks:
1. Depreciation accounting is mainly based on the …………………….
2. Depreciation is the permanent decrease in the value of the …………………….

3. Depreciation is calculated on the basis of …………………….
4. …………………… can be created for replacement of fixed assets.
5. Amount of depreciation if charged on the basis of …………………… remains constant for
every year.
6. The original value of the asset is the …………………… of the asset.
7. Reserve is created to strengthen the …………………… of the business.
8. The profits can be distributed without providing for depreciation with the prior permission
of the …………………….

10.3 Methods for Providing Depreciation

There are various methods of allocating depreciation over the useful life of the assets. The
method of providing the depreciation is selected on the basis of various factors as types of assets,
nature of business, circumstances prevailing in business, etc.

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