Depreciation Accounting — Flashcards

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Depreciation is the gradual and permanent decrease in the value of a fixed asset due to wear and tear, passage of time, or obsolescence. It is charged as an expense over the useful life of the asset t…

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Depreciation is charged to allocate the cost of a fixed asset over its useful life. This ensures that the profit and loss account reflects the true profit by accounting for the reduction in asset valu…

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The main causes of depreciation are: 1. Normal wear and tear due to usage (e.g., machinery losing efficiency). 2. Passage of time (e.g., furniture deteriorating even when unused). 3. Obsolescence due …

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Obsolescence occurs when an asset becomes outdated or less useful due to advancements in technology, changes in fashion, or shifts in consumer preferences. For example, a typewriter becomes obsolete w…

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1. To show the true financial position of the business by accurately reflecting asset values in the balance sheet. 2. To retain sufficient funds in the business for the eventual replacement of the ass…

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Useful life is the estimated number of years an asset is expected to be economically usable by the business. For example, a delivery van may have a useful life of 8 years before it needs replacement.

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Scrap value is the estimated residual value of an asset at the end of its useful life, which can be recovered by selling it as scrap. For example, a machine costing ₹5,00,000 may have a scrap value of…

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Depreciable value = Cost of Asset – Scrap Value. For example, if a generator costs ₹5,10,500 and its scrap value is ₹60,000, the depreciable value is ₹4,50,500.