Accounting: Part 1
By – CA Nitin Goel
, CA FOUNDATION MARATHON (SUPER REVISION/ONE SH
ACCOUNTING
S.NO. CHAPTER NAME
1 Depreciation & Amortisation
2 Final Accounts of Sole Proprietors
3 Accounts from Incomplete Records
4 Financial Statements of Not for Profit Organisation
,Depreciation &
Amortisation
, CA NITIN GOEL DEPRECIATION and AMORTISATION
DEPRECIATION and AMORTISATION
T
CONCEPT OF DEPRECIATION
Property, plant and equipment are tangible items that:
(a) are held for use in the production or supply of goods or services, for rental to others, or for
administrative purposes; and
(b) are expected to be used during more than a period of 12 months.
It is necessary that part of the acquisition cost of the fixed assets is treated or allocated as an
expense in each of the accounting period in which the asset is utilized. The amount of fixed
assets allocated in such manner to respective accounting period is called depreciation.
Meaning of Depreciation
Depreciation is the systematic allocation of the depreciable amount of an asset over its useful
life. Depreciation starts from the day asset is available for use.
Depreciation on components of an assets
Each part of an item of Property, Plant and Equipment with a cost that is significant in relation
to the total cost of the item should be depreciated separately.
An enterprise should allocate the amount initially recognised in respect of an item of asset to
its significant parts/components and should depreciate each such part separately based on the
useful life and residual value of each particular component.
For Example - Aircraft is a classic example of such an asset. The airframe (i.e. the body of the
aircraft), the engines and the interiors have different individual useful lives.
OBJECTIVES FOR PROVIDING DEPRECIATION
❖ True cost of production
❖ Income measurement
❖ True Position Statement
❖ Funds for replacement
FACTORS FOR DEPRECIATION
Assessment of depreciation & amount of depreciation are usually based on the following three
factors
Historical Cost or other amount Estimated Estimated
substituted for the Historical Cost of Useful Life Residual Value
the Asset when revalued.
Page 1
By – CA Nitin Goel
, CA FOUNDATION MARATHON (SUPER REVISION/ONE SH
ACCOUNTING
S.NO. CHAPTER NAME
1 Depreciation & Amortisation
2 Final Accounts of Sole Proprietors
3 Accounts from Incomplete Records
4 Financial Statements of Not for Profit Organisation
,Depreciation &
Amortisation
, CA NITIN GOEL DEPRECIATION and AMORTISATION
DEPRECIATION and AMORTISATION
T
CONCEPT OF DEPRECIATION
Property, plant and equipment are tangible items that:
(a) are held for use in the production or supply of goods or services, for rental to others, or for
administrative purposes; and
(b) are expected to be used during more than a period of 12 months.
It is necessary that part of the acquisition cost of the fixed assets is treated or allocated as an
expense in each of the accounting period in which the asset is utilized. The amount of fixed
assets allocated in such manner to respective accounting period is called depreciation.
Meaning of Depreciation
Depreciation is the systematic allocation of the depreciable amount of an asset over its useful
life. Depreciation starts from the day asset is available for use.
Depreciation on components of an assets
Each part of an item of Property, Plant and Equipment with a cost that is significant in relation
to the total cost of the item should be depreciated separately.
An enterprise should allocate the amount initially recognised in respect of an item of asset to
its significant parts/components and should depreciate each such part separately based on the
useful life and residual value of each particular component.
For Example - Aircraft is a classic example of such an asset. The airframe (i.e. the body of the
aircraft), the engines and the interiors have different individual useful lives.
OBJECTIVES FOR PROVIDING DEPRECIATION
❖ True cost of production
❖ Income measurement
❖ True Position Statement
❖ Funds for replacement
FACTORS FOR DEPRECIATION
Assessment of depreciation & amount of depreciation are usually based on the following three
factors
Historical Cost or other amount Estimated Estimated
substituted for the Historical Cost of Useful Life Residual Value
the Asset when revalued.
Page 1
