Meaning of depreciation
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Detailed Solution & Explanation
Meaning of depreciation;
An expenditure which results into enduring benefit (long-term benefit) are treated as capital
expenditure/fixed assets. Fixed assets are those assets which are held for use in the business
and not for sale or consumption in the course of production.
Fixed assets which have a limited useful life are known as depreciable assets like, building,
plant and machinery, etc. land is a non-depreciable asset. Revenue expenses are charged to
the year's P&L A/c similarly depreciable fixed assets should be charged over (written off) over
its useful life. This process of systematically allocating depreciable amount (cost less
estimated scrap value) to the P&L accounts over its useful life is known as depreciation
accounting. Amortization of assets which has specific life like patents etc. is also included in
it.
♦ Depreciation is the reduction in the value of fixed assets due to:
its use,
passage of time and
obsolescence.
♦ Depreciation is the apportionment of cost of asset net of estimated scrap value over its
estimated useful life.
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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