Diminishing Balance Method [Dec. 2023, 1 Mark]
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Detailed Solution & Explanation
Diminishing Balance Method: -
Under this method the % of depreciation will be applied in 1st year on original cost and
thereafter every year on the written down value at the beginning of that year. W.D.V. rate for
charging depreciation can be worked out by following formula: -
Where 'N' is life of Asset in years.
Under the diminishing balance method, the amount of depreciation written off every year is
not the same. Larger amounts are charged in the earlier years of the life of an asset than in
the later years. In this method the annual charge for depreciation is calculated by applying a
fixed percentage of the diminishing value of the asset. The diminishing balance method will
never reduce the book value of the asset to zero.
About This Chapter: BRS & Inventories
Paper
Paper 1: Accounting
Weightage
20-25%
Key Topics
Reconciliation, Valuation, Depreciation
This chapter covers Reconciliation, Valuation, Depreciation and is part of Paper 1: Accounting in the CA Foundation exam.
View Official ICAI SyllabusExam Strategy Tip
This topic carries 20-25% weightage. Focus on understanding core concepts rather than memorizing.
Key Concepts to Understand
Related Comparison Tables
More Questions from Depreciation and Amortisation
The following details are available of raw material of a manufacturing unit : 1-5-2024 Opening Inventory 100 units @ Rs. 15 per unit 2-5-2024 Purchases 300 units @ Rs. 18 per unit 5-5-2024 Issued for consumption 250 units 16-5-2024 Purchases 500 units @ Rs. 21 per unit 21-5-2024 Issued for consumption 100 units 25-5-2024 Issued for consumption 450 units The manufacturer also incurred the following expenses: ◆ Freight of 300 and unloading charges of 150 at the time of every purchase respectively. ◆ Warehouse rent of ₹ 2,000 per month. ◆ Administrative Expenses of ₹ 1,500 per month. You are required to find out the value of inventory as on May 31, 2024 if the company follows: (a) Weighted Average method for inventory valuation. (b) First in First Out method for inventory valuation. [Jan. 2025, Marks 5]
Meaning of depreciation
Sum of Years of Digits Method
Depletion method
Discuss the factors taken into consideration for calculation of depreciation. [Nov. 2020, 5 Marks]
Amortisation [Dec. 2021, 1 Mark]
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