Chapter 7: Depreciation, Provisions and Reserves
Chapter 7: Depreciation, Provisions and Reserves – Important Topics:
- Meaning and Definition of Depreciation (AS-6)
- Depreciation vs Depletion vs Amortisation
- Causes and Need for Depreciation
- Factors Affecting Depreciation (Cost, Residual Value, Useful Life)
- Methods of Depreciation: Straight Line Method (SLM) and Written Down Value Method (WDV)
- Comparison of SLM and WDV
- Methods of Recording Depreciation: Charging to Asset A/c vs Provision for Depreciation A/c
- Disposal of Asset and Asset Disposal Account
- Effect of Additions/Extensions to Asset
- Provisions – Meaning, Examples, Accounting Treatment
- Reserves – Meaning, Examples, Types (General, Specific, Revenue, Capital)
- Difference between Provision and Reserve
- Difference between Revenue Reserve and Capital Reserve
- Secret Reserve – Meaning and Methods of Creation
- Previous Year Exam Questions (2019–2021) with Answers
Section 1: Depreciation
1.1 Meaning and Definition of Depreciation
Simple Explanation: Depreciation is the gradual decrease in the value of a fixed asset due to its use, passage of time, or obsolescence. It is an expense that is charged every year to match the cost of the asset with the revenue it helps to generate. Depreciation is a non-cash expense – no cash is paid when depreciation is recorded.
Definition as per AS-6 (Revised): "Depreciation is a measure of the wearing out, consumption or other loss of value of a depreciable asset arising from use, effluxion of time or obsolescence through technology and market‑change. Depreciation is allocated so as to charge a fair proportion of the depreciable amount in each accounting period during the expected useful life of the asset. Depreciation includes amortisation of assets whose useful life is pre‑determined."
📘 Definition (ICMA London): "The depreciation is the diminution in intrinsic value of the asset due to use and/or lapse of time."
💡 Live Example – 1: A machine is purchased for ₹1,00,000 on April 1, 2017. Its useful life is 10 years. Every year, ₹10,000 (one-tenth) is charged as depreciation. This matches the cost of the machine against the revenue of 10 years.
💡 Live Example – 2: A delivery van is used for transporting goods. Every year its value reduces because of wear and tear, even if it is still in working condition. This reduction is depreciation.
💡 Live Example – 2: A delivery van is used for transporting goods. Every year its value reduces because of wear and tear, even if it is still in working condition. This reduction is depreciation.
💭 Think: A company purchases a patent for ₹10,00,000 with a legal life of 10 years. Should the entire cost be charged in the year of purchase?
Simple Hints: No. The benefit of the patent will be received over 10 years. According to the matching principle, the cost should be spread over its useful life. This spreading is called amortisation.
Simple Hints: No. The benefit of the patent will be received over 10 years. According to the matching principle, the cost should be spread over its useful life. This spreading is called amortisation.
📝 Exam Practice (1 mark – 2021 March): Depreciation is charged on:
(a) Current Assets (b) Fixed Assets (c) Current and Fixed Assets (d) None of these
Answer: (b) Fixed Assets.
Hint: Depreciation applies only to fixed assets (tangible and intangible). Current assets are not depreciated.
(a) Current Assets (b) Fixed Assets (c) Current and Fixed Assets (d) None of these
Answer: (b) Fixed Assets.
Hint: Depreciation applies only to fixed assets (tangible and intangible). Current assets are not depreciated.
1.2 Depreciation, Depletion and Amortisation – Similar but Different
📘 Depletion: Used for natural resources like mines, quarries, oil wells. It represents the reduction in the quantity of the resource as it is extracted.
📘 Amortisation: Used for intangible assets like patents, copyrights, trademarks, goodwill. It is the systematic write‑off of the cost of an intangible asset over its useful life.
📘 Depreciation: Used for tangible fixed assets like plant, machinery, furniture, vehicles.
📘 Amortisation: Used for intangible assets like patents, copyrights, trademarks, goodwill. It is the systematic write‑off of the cost of an intangible asset over its useful life.
📘 Depreciation: Used for tangible fixed assets like plant, machinery, furniture, vehicles.
💡 Example – Depletion: A coal mine costing ₹10,00,000. As coal is extracted, the value of the mine reduces. This reduction is depletion.
💡 Example – Amortisation: A patent costing ₹10,00,000 with a useful life of 10 years. ₹1,00,000 is written off each year – this is amortisation.
💡 Example – Amortisation: A patent costing ₹10,00,000 with a useful life of 10 years. ₹1,00,000 is written off each year – this is amortisation.
📝 Exam Practice (1 mark – 2020 IMP): The term ‘amortisation’ is related with the decrease in the value of:
(a) Fixed asset (b) Current asset (c) Wasting asset (d) Intangible asset
Answer: (d) Intangible asset.
(a) Fixed asset (b) Current asset (c) Wasting asset (d) Intangible asset
Answer: (d) Intangible asset.
📝 Exam Practice (1 mark – 2020 March): Writing off the cost of intangible assets like patent, copyright etc. is known as _____ .
(a) Depreciation (b) Depletion (c) Amortization (d) Obsolescence
Answer: (c) Amortization.
(a) Depreciation (b) Depletion (c) Amortization (d) Obsolescence
Answer: (c) Amortization.
1.3 Causes of Depreciation
- Wear and Tear: Due to actual use of the asset. Even if not used, passage of time causes deterioration.
- Expiration of Legal Rights: Patents, copyrights, leases – after the legal period, the asset loses value.
- Obsolescence: Asset becomes outdated due to technological changes, new inventions, change in market demand.
- Abnormal Factors: Accidents, fire, flood, etc. (though this is not gradual, it is a permanent loss).
💡 Example – Obsolescence: A machine bought in 2017 becomes outdated in 2018 because a new model with double efficiency is launched. The old machine’s value drops even though it is not physically worn out.
1.4 Need / Objectives of Providing Depreciation
Simple Explanation: Why do we charge depreciation? Five main reasons:
- Matching of Costs and Revenue: Depreciation is an expired cost; it must be matched with the revenue earned during the period to ascertain true profit.
- True and Fair Financial Position: If depreciation is not charged, assets will be overvalued in the balance sheet.
- Consideration of Tax: Depreciation is a deductible expense under the Income Tax Act. Not charging it leads to overstatement of profit and excess tax payment.
- To Retain Funds for Replacement: Depreciation charged every year accumulates funds that can be used to replace the asset at the end of its life.
- Compliance with Law: The Companies Act and other regulations make it mandatory to charge depreciation.
📝 Exam Practice (3 marks – 2021 March): Write any three needs for charging depreciation on assets.
Answer: (Any three from above) – e.g., 1) To ascertain true result, 2) To present true balance sheet, 3) To retain funds for replacement, 4) To avoid excess payment of tax, 5) To fulfil legal requirement.
Answer: (Any three from above) – e.g., 1) To ascertain true result, 2) To present true balance sheet, 3) To retain funds for replacement, 4) To avoid excess payment of tax, 5) To fulfil legal requirement.
1.5 Factors Affecting the Amount of Depreciation
- Cost of Asset: Purchase price + all expenses necessary to bring the asset to working condition (freight, installation, erection, commissioning).
- Estimated Net Residual Value (Scrap Value): The estimated realizable value at the end of its useful life, less disposal expenses.
- Depreciable Cost: Cost of asset – Net Residual Value.
- Estimated Useful Life: The period over which the asset is expected to be used by the enterprise. It may be expressed in years, working hours, or units of production.
💡 Example – Calculation of Cost: Machine purchase price ₹50,000, freight ₹5,000, installation ₹5,000. Cost = ₹60,000.
💡 Example – Depreciable Cost: Cost ₹60,000, scrap value ₹10,000. Depreciable cost = ₹50,000.
💡 Example – Depreciable Cost: Cost ₹60,000, scrap value ₹10,000. Depreciable cost = ₹50,000.
1.6 Methods of Calculating Depreciation
1.6.1 Straight Line Method (SLM) / Fixed Installment Method
Simple Explanation: Under this method, a fixed amount of depreciation is charged every year. The amount is calculated as: (Cost – Scrap Value) / Useful Life. A fixed percentage of the original cost is written off each year.
📘 Formula:
Depreciation per annum = (Cost of Asset – Estimated Net Residual Value) / Estimated Useful Life
Rate of Depreciation = (Annual Depreciation / Cost of Asset) × 100
Depreciation per annum = (Cost of Asset – Estimated Net Residual Value) / Estimated Useful Life
Rate of Depreciation = (Annual Depreciation / Cost of Asset) × 100
💡 Illustration 1 (from textbook): Plant purchased for ₹5,00,000 + installation ₹50,000 = ₹5,50,000. Useful life 10 years, scrap value ₹10,000. Depreciation = (5,50,000 – 10,000)/10 = ₹54,000 p.a. Rate = (54,000/5,50,000) × 100 = 9.82% ≈ 10% (approx).
📘 Advantages of SLM:
- Simple and easy to understand.
- Equal charge to Profit & Loss A/c every year.
- Asset can be completely written off (book value becomes zero).
- Suitable for assets where repair charges are low and obsolescence is not a concern (e.g., leasehold buildings).
📘 Limitations of SLM:
- Assumes equal usage/benefit every year – unrealistic.
- Repair expenses increase in later years, so total charge (depreciation + repairs) is not uniform; it increases over time.
1.6.2 Written Down Value Method (WDV) / Diminishing Balance Method
Simple Explanation: Under this method, depreciation is charged at a fixed percentage on the book value (written down value) of the asset at the beginning of the year. The amount of depreciation decreases every year.
📘 Formula for Rate under WDV:
r = [1 – (s/c)^(1/n)] × 100
where r = rate of depreciation, s = scrap value, c = cost, n = useful life.
r = [1 – (s/c)^(1/n)] × 100
where r = rate of depreciation, s = scrap value, c = cost, n = useful life.
💡 Example: Asset cost ₹2,00,000, depreciation @10% p.a. on WDV.
Year 1: 20,000; WDV = 1,80,000.
Year 2: 18,000; WDV = 1,62,000.
Year 3: 16,200; WDV = 1,45,800.
Year 1: 20,000; WDV = 1,80,000.
Year 2: 18,000; WDV = 1,62,000.
Year 3: 16,200; WDV = 1,45,800.
📘 Advantages of WDV:
- More realistic – asset’s efficiency declines over time.
- Equal total charge (depreciation + repairs) year after year (depreciation high initially, repairs low; later depreciation low, repairs high).
- Recognised by Income Tax Act.
- Suitable for assets with high obsolescence and increasing repair costs (machinery, vehicles).
📘 Limitations of WDV:
- Depreciable cost cannot be completely written off (asset never becomes zero).
- Difficulty in determining a suitable rate.
📝 Exam Practice (4 marks – 2019 March): Distinguish between straight line method and written down value method. Write two points.
Answer: (See comparison table in solution – any two points)
Hint: Basis of charging (original cost vs book value), annual charge (fixed vs declining), recognition by tax, suitability.
Answer: (See comparison table in solution – any two points)
Hint: Basis of charging (original cost vs book value), annual charge (fixed vs declining), recognition by tax, suitability.
| Basis of Difference | Straight Line Method (SLM) | Written Down Value Method (WDV) |
|---|---|---|
| Basis of charging | Original cost | Book value (WDV) at beginning of year |
| Annual depreciation amount | Fixed and constant | Declines year after year |
| Total charge (depreciation + repairs) | Increases in later years | Almost equal every year |
| Recognition by Income Tax Act | Not recognised | Recognised |
| Suitability | Assets with low repair cost, low obsolescence (e.g., buildings, patents) | Assets affected by technological changes, high repair cost (e.g., machinery, vehicles) |
1.7 Methods of Recording Depreciation
1.7.1 Method 1: Charging Depreciation to Asset Account
Simple Explanation: Depreciation is directly credited to the asset account, and the asset appears in the balance sheet at its net book value (cost – accumulated depreciation). This method is simple but the asset’s original cost is not visible in the balance sheet.
📘 Journal Entries:
1. For purchase of asset (only in year of purchase):
Asset A/c Dr. (cost + installation, freight etc.)
To Bank / Vendor A/c
2. At the end of each year:
(a) Depreciation A/c Dr.
To Asset A/c
(b) Profit & Loss A/c Dr.
To Depreciation A/c
1. For purchase of asset (only in year of purchase):
Asset A/c Dr. (cost + installation, freight etc.)
To Bank / Vendor A/c
2. At the end of each year:
(a) Depreciation A/c Dr.
To Asset A/c
(b) Profit & Loss A/c Dr.
To Depreciation A/c
1.7.2 Method 2: Creating Provision for Depreciation / Accumulated Depreciation Account
Simple Explanation: Depreciation is accumulated in a separate account called Provision for Depreciation A/c. The asset continues to appear at its original cost in the balance sheet, and the provision is shown as a deduction from the asset or on the liabilities side. This method maintains the historical cost of the asset.
📘 Journal Entries:
1. For purchase of asset – same as above.
2. At the end of each year:
(a) Depreciation A/c Dr.
To Provision for Depreciation A/c
(b) Profit & Loss A/c Dr.
To Depreciation A/c
1. For purchase of asset – same as above.
2. At the end of each year:
(a) Depreciation A/c Dr.
To Provision for Depreciation A/c
(b) Profit & Loss A/c Dr.
To Depreciation A/c
💡 Illustration 2 & 3 (Textbook): Machine purchased on Oct 1, 2016 for ₹1,80,000 + installation ₹20,000. Depreciation @10% p.a. on original cost. Books close on March 31. The two methods are shown in detail in the textbook.
1.8 Disposal of Asset and Asset Disposal Account
Simple Explanation: When an asset is sold, we need to remove its cost and accumulated depreciation from the books and record the profit or loss on sale. If Provision for Depreciation A/c is maintained, we first transfer the accumulated depreciation to the asset account, then record the sale.
📘 Journal Entries (when Provision for Depreciation is maintained):
1. Transfer accumulated depreciation:
Provision for Depreciation A/c Dr.
To Asset A/c
2. Record sale proceeds:
Bank A/c Dr.
To Asset A/c
3. Transfer balance of Asset A/c to P&L A/c (profit or loss):
If debit balance (loss): P&L A/c Dr. To Asset A/c
If credit balance (profit): Asset A/c Dr. To P&L A/c
1. Transfer accumulated depreciation:
Provision for Depreciation A/c Dr.
To Asset A/c
2. Record sale proceeds:
Bank A/c Dr.
To Asset A/c
3. Transfer balance of Asset A/c to P&L A/c (profit or loss):
If debit balance (loss): P&L A/c Dr. To Asset A/c
If credit balance (profit): Asset A/c Dr. To P&L A/c
📘 Asset Disposal Account: A special account opened to show the entire disposal transaction in one place. Debit side: original cost; Credit side: accumulated depreciation + sale proceeds. The balance is transferred to P&L A/c.
💡 Illustration 6 (Textbook): Khosla Transport Co. – purchase of 5 trucks, sale of one truck, purchase of new truck. Detailed entries and accounts.
1.9 Effect of Additions or Extensions to Existing Asset
📘 AS-6 Guidelines:
- If addition becomes an integral part of the asset, depreciate over the remaining useful life of the asset.
- If addition retains a separate identity and can be used after the original asset is disposed, depreciate independently over its own useful life.
💡 Illustration 10 & 11: Modification costs capitalised and depreciated separately.
Section 2: Provisions and Reserves
2.1 Provisions
Simple Explanation: A provision is an amount set aside out of profits to cover a known liability or expense whose amount is not certain, but it is related to the current accounting period. It is a charge against profit (i.e., it is deducted before calculating net profit).
📘 Examples of Provisions:
- Provision for Depreciation
- Provision for Doubtful Debts
- Provision for Discount on Debtors
- Provision for Taxation
- Provision for Repairs and Renewals
📘 Accounting Treatment (Provision for Doubtful Debts):
– Write off actual bad debts: Bad Debts A/c Dr.; To Sundry Debtors A/c.
– Create provision: Profit & Loss A/c Dr.; To Provision for Doubtful Debts A/c.
– In Balance Sheet: Provision is deducted from Sundry Debtors on the assets side.
– Write off actual bad debts: Bad Debts A/c Dr.; To Sundry Debtors A/c.
– Create provision: Profit & Loss A/c Dr.; To Provision for Doubtful Debts A/c.
– In Balance Sheet: Provision is deducted from Sundry Debtors on the assets side.
💡 Example: Sundry Debtors ₹68,000; Additional bad debts ₹8,000; Provision to be maintained at 10% of debtors. After writing off bad debts, debtors = ₹60,000; Provision = ₹6,000.
📝 Exam Practice (5 marks – Textbook Q21): An extract of Trial balance: Sundry Debtors ₹50,000, Bad debts ₹6,000, Provision for doubtful debts ₹4,000. Additional bad debts ₹2,000. Provision to be maintained @8% of debtors. Give journal entries and accounts.
Answer: (Refer textbook solution)
Answer: (Refer textbook solution)
2.2 Reserves
Simple Explanation: A reserve is an appropriation of profit (i.e., part of profit set aside and retained in the business) to strengthen the financial position or to meet future contingencies. It is not a charge against profit; it is created after calculating net profit.
📘 Examples of Reserves:
- General Reserve
- Workmen Compensation Fund
- Investment Fluctuation Fund
- Dividend Equalisation Reserve
- Debenture Redemption Reserve
- Capital Reserve
2.3 Difference between Provision and Reserve
| Basis | Provision | Reserve |
|---|---|---|
| 1. Nature | Charge against profit | Appropriation of profit |
| 2. Purpose | For a known liability/expense (amount uncertain) | To strengthen financial position / meet future contingencies |
| 3. Effect on taxable profit | Reduces taxable profit | No effect on taxable profit |
| 4. Presentation in Balance Sheet | Deducted from asset or shown as current liability | Shown under Reserves & Surplus (after capital) |
| 5. Necessity | Must be created even if no profit | Created only out of profits; discretionary (except where law mandates) |
| 6. Use for dividend | Cannot be used for dividend | General reserve can be used for dividend |
2.4 Types of Reserves
2.4.1 Based on Purpose
📘 General Reserve: Created without specifying the purpose; also called free reserve. Can be used for any purpose.
📘 Specific Reserve: Created for a specific purpose and can be used only for that purpose. Examples: Dividend Equalisation Reserve, Workmen Compensation Fund, Investment Fluctuation Fund, Debenture Redemption Reserve.
📘 Specific Reserve: Created for a specific purpose and can be used only for that purpose. Examples: Dividend Equalisation Reserve, Workmen Compensation Fund, Investment Fluctuation Fund, Debenture Redemption Reserve.
2.4.2 Based on Nature of Profit
📘 Revenue Reserve: Created out of revenue profits (profits from normal operating activities). Freely available for dividend distribution. Examples: General Reserve, Dividend Equalisation Reserve, Workmen Compensation Fund.
📘 Capital Reserve: Created out of capital profits (profits not arising from normal operations). Not available for dividend distribution; can be used to write off capital losses or issue bonus shares. Examples: Profit on sale of fixed assets, premium on issue of shares/debentures, profit on revaluation, profit on forfeiture of shares.
📘 Capital Reserve: Created out of capital profits (profits not arising from normal operations). Not available for dividend distribution; can be used to write off capital losses or issue bonus shares. Examples: Profit on sale of fixed assets, premium on issue of shares/debentures, profit on revaluation, profit on forfeiture of shares.
| Basis | Revenue Reserve | Capital Reserve |
|---|---|---|
| Source | Revenue profits (normal operations) | Capital profits (not from normal operations) |
| Dividend distribution | Can be distributed | Cannot be distributed |
| Purpose | Strengthen financial position, meet contingencies | Comply with legal requirements, write off capital losses, issue bonus shares |
2.5 Secret Reserve
Simple Explanation: A secret reserve is a reserve that is not disclosed in the balance sheet. It is created by intentionally understating profits or assets, or overstating liabilities. It is also called hidden reserve. Secret reserves are not permitted under Indian law for companies (but in the past, some businesses created them). However, for educational purposes, we study the methods.
📘 Methods of Creating Secret Reserve:
- Depreciating fixed assets at higher rates than necessary.
- Undervaluing closing stock.
- Making excessive provision for doubtful debts.
- Treating capital expenditure as revenue expenditure.
- Showing contingent liabilities as actual liabilities.
💭 Think: Is it ethical to create a secret reserve? Why do companies sometimes do it?
Simple Hints: It is generally not considered ethical because it misleads stakeholders. However, some companies did it in the past to equalise dividends, reduce tax, or keep financial strength hidden from competitors.
Simple Hints: It is generally not considered ethical because it misleads stakeholders. However, some companies did it in the past to equalise dividends, reduce tax, or keep financial strength hidden from competitors.
📌 Previous Year Exam Questions (with Answers)
Q1. (2021 March – 1 Mark) Depreciation is charged on:
(a) Current Assets (b) Fixed Assets (c) Current and Fixed Assets (d) None of these
Answer: (b) Fixed Assets.
(a) Current Assets (b) Fixed Assets (c) Current and Fixed Assets (d) None of these
Answer: (b) Fixed Assets.
Q2. (2021 March – 3 Marks) Write any three needs for charging depreciation on assets.
Answer: 1) To ascertain true result of business. 2) To present true balance sheet. 3) To retain funds for replacement. 4) To avoid excess payment of income tax. 5) To fulfil legal requirement. (Any three)
Answer: 1) To ascertain true result of business. 2) To present true balance sheet. 3) To retain funds for replacement. 4) To avoid excess payment of income tax. 5) To fulfil legal requirement. (Any three)
Q3. (2020 IMP – 1 Mark) The term ‘amortisation’ is related with the decrease in the value of:
(a) Fixed asset (b) Current asset (c) Wasting asset (d) Intangible asset
Answer: (d) Intangible asset.
(a) Fixed asset (b) Current asset (c) Wasting asset (d) Intangible asset
Answer: (d) Intangible asset.
Q4. (2020 IMP – 5 Marks) Arun traders purchased a machinery by issuing a cheque of ₹64,000 to the vendors on 1-10-2016. They also incurred erection charges of ₹6,000. Expected life 5 years, scrap value ₹10,000. (a) Calculate annual depreciation. (b) Prepare Machinery A/c for first 3 years under SLM. (Books close on 31 March).
Answer: Cost = 64,000+6,000 = 70,000. Depreciable cost = 70,000-10,000 = 60,000. Annual depreciation = 60,000/5 = ₹12,000. For 2016-17 (6 months) = ₹6,000. (Full account in solution)
Answer: Cost = 64,000+6,000 = 70,000. Depreciable cost = 70,000-10,000 = 60,000. Annual depreciation = 60,000/5 = ₹12,000. For 2016-17 (6 months) = ₹6,000. (Full account in solution)
Q5. (2020 March – 1 Mark) Writing off the cost of intangible assets like patent, copyright etc. is known as _____ .
Answer: Amortization.
Answer: Amortization.
Q6. (2020 March – 5 Marks) On July 1, 2014 Elite Printers purchased machinery for ₹3,00,000 and spent ₹10,000 for installation. Depreciation @10% p.a. on SLM. Prepare Machinery A/c for first 4 years. Books close on 31 Dec.
Answer: (See solution in PDF) – Depreciation for 2014 (6 months) = 15,500; 2015 = 31,000; 2016 = 31,000; 2017 = 31,000. Balances carried forward.
Answer: (See solution in PDF) – Depreciation for 2014 (6 months) = 15,500; 2015 = 31,000; 2016 = 31,000; 2017 = 31,000. Balances carried forward.
Q7. (2019 Imp – 4 Marks) M/s Radhika Textile Mills purchased machinery on 1st April, 2015 for ₹2,00,000 + installation ₹30,000. Another machine on 1st Jan 2017 for ₹30,000. Depreciation @20% on WDV. Show Machinery A/c up to 31st March, 2018.
Answer: (See solution in PDF) – Balances: 31.3.16: ₹1,84,000; 31.3.17: ₹1,75,700; 31.3.18: ₹1,40,560.
Answer: (See solution in PDF) – Balances: 31.3.16: ₹1,84,000; 31.3.17: ₹1,75,700; 31.3.18: ₹1,40,560.
Q8. (2019 March – 4 Marks) (a) Show Machinery A/c for 2015-16 from given data. (b) Distinguish between SLM and WDV (2 points).
Answer: (a) Depreciation 10% SLM, asset purchased 30.6.15, cost ₹50,000. Depreciation 2015 (6 months) = 2,500; 2016 = 5,000. (b) Two differences: basis of charging (original cost vs book value), annual charge (fixed vs declining), etc.
Answer: (a) Depreciation 10% SLM, asset purchased 30.6.15, cost ₹50,000. Depreciation 2015 (6 months) = 2,500; 2016 = 5,000. (b) Two differences: basis of charging (original cost vs book value), annual charge (fixed vs declining), etc.
📘 Practice Question – Illustration 1 (SLM): M/s Singhania and Bros. purchased a plant for ₹5,00,000 on April 1, 2016, spent ₹50,000 on installation. Scrap value ₹10,000 after 10 years. Prepare Plant A/c and Depreciation A/c for first 3 years using SLM (charging depreciation to asset account).
Answer: Depreciation = ₹54,000 p.a. Balances: 31.3.17 = ₹4,96,000; 31.3.18 = ₹4,42,000; 31.3.19 = ₹3,88,000.
Answer: Depreciation = ₹54,000 p.a. Balances: 31.3.17 = ₹4,96,000; 31.3.18 = ₹4,42,000; 31.3.19 = ₹3,88,000.
📘 Practice Question – Illustration 4 (WDV): M/s Dalmia Textile Mills purchased machinery on April 1, 2016 for ₹2,00,000 + installation ₹10,000. Depreciation @10% p.a. on WDV. Prepare Machinery A/c for first 3 years.
Answer: Depreciation: 2016-17 = ₹21,000; 2017-18 = ₹18,900; 2018-19 = ₹17,010. Balances: 1,89,000; 1,70,100; 1,53,090.
Answer: Depreciation: 2016-17 = ₹21,000; 2017-18 = ₹18,900; 2018-19 = ₹17,010. Balances: 1,89,000; 1,70,100; 1,53,090.
📘 Practice Question – Provision for Doubtful Debts (Q21): From the following, give journal entries and necessary accounts: Sundry Debtors ₹50,000, Bad debts ₹6,000, Provision for doubtful debts ₹4,000. Additional bad debts ₹2,000. Provision to be maintained @8% of debtors.
Answer: New provision = ₹3,840. Profit & Loss A/c (Dr.) = ₹7,840.
Answer: New provision = ₹3,840. Profit & Loss A/c (Dr.) = ₹7,840.
മലയാളം വിഭാഗം
അധ്യായം 7: മൂല്യത്തകർച്ച, പ്രൊവിഷനുകൾ, കരുതൽ ധനം – പ്രധാന പാഠഭാഗങ്ങൾ:
- മൂല്യത്തകർച്ച – അർത്ഥവും നിർവചനവും (AS-6)
- മൂല്യത്തകർച്ച vs ശോഷണം vs അമോർട്ടൈസേഷൻ
- മൂല്യത്തകർച്ചയുടെ കാരണങ്ങളും ആവശ്യകതയും
- മൂല്യത്തകർച്ചയെ ബാധിക്കുന്ന ഘടകങ്ങൾ
- മൂല്യത്തകർച്ച കണക്കാക്കുന്ന രീതികൾ: സ്ട്രെയിറ്റ് ലൈൻ രീതി (SLM), റൈറ്റൺ ഡൗൺ വാല്യു രീതി (WDV)
- മൂല്യത്തകർച്ച രേഖപ്പെടുത്തുന്ന രീതികൾ
- ആസ്തികളുടെ വിനിയോഗവും ആസ്തി വിനിയോഗ അക്കൗണ്ടും
- പ്രൊവിഷനുകൾ – അർത്ഥം, ഉദാഹരണങ്ങൾ, അക്കൗണ്ടിംഗ് ചികിത്സ
- കരുതൽ ധനം – അർത്ഥം, ഉദാഹരണങ്ങൾ, തരങ്ങൾ (ജനറൽ, സ്പെസിഫിക്, റവന്യൂ, ക്യാപിറ്റൽ)
- പ്രൊവിഷനും കരുതൽ ധനവും തമ്മിലുള്ള വ്യത്യാസം
- റവന്യൂ കരുതലും ക്യാപിറ്റൽ കരുതലും തമ്മിലുള്ള വ്യത്യാസം
- രഹസ്യ കരുതൽ – അർത്ഥവും സൃഷ്ടിക്കുന്ന രീതികളും
- മുൻവർഷ പരീക്ഷാ ചോദ്യങ്ങൾ (2019–2021) ഉത്തരങ്ങളോടെ
ലളിതമായ വിശദീകരണം: സ്ഥിര ആസ്തികളുടെ മൂല്യത്തിൽ ഉപയോഗം, കാലക്രമം, അല്ലെങ്കിൽ കാലഹരണപ്പെടൽ എന്നിവ മൂലമുണ്ടാകുന്ന ക്രമാനുഗതമായ കുറവാണ് മൂല്യത്തകർച്ച. ആസ്തിയുടെ വില അതിന്റെ ഉപയോഗ കാലയളവിൽ വിതരണം ചെയ്ത്, ഓരോ വർഷവും ഒരു ചെലവായി കാണിക്കുന്നു. ഇത് ഒരു പണമിടപാട് ഇതര ചെലവാണ്.
1. മൂല്യത്തകർച്ച – അർത്ഥവും നിർവചനവും
📘 AS-6 (പരിഷ്കരിച്ചത്) അനുസരിച്ച്: "ഉപയോഗം, കാലക്രമം അല്ലെങ്കിൽ സാങ്കേതികവിദ്യയിലെ മാറ്റങ്ങൾ മൂലമുണ്ടാകുന്ന കാലഹരണപ്പെടൽ എന്നിവ മൂലം മൂല്യത്തകർച്ചയ്ക്ക് വിധേയമായ ആസ്തികളുടെ മൂല്യത്തിൽ ഉണ്ടാകുന്ന കുറവിന്റെ അളവാണ് മൂല്യത്തകർച്ച. ആസ്തിയുടെ പ്രതീക്ഷിക്കുന്ന ഉപയോഗ കാലയളവിൽ ഓരോ അക്കൗണ്ടിംഗ് കാലയളവിലും മൂല്യത്തകർച്ചയുടെ ന്യായമായ അനുപാതം ഈടാക്കുന്നു."
2. മൂല്യത്തകർച്ച vs ശോഷണം vs അമോർട്ടൈസേഷൻ
📘 മൂല്യത്തകർച്ച: മൂർത്തമായ സ്ഥിര ആസ്തികൾ (യന്ത്രങ്ങൾ, വാഹനങ്ങൾ, ഫർണിച്ചർ).
📘 ശോഷണം: പ്രകൃതി വിഭവങ്ങൾ (ഖനികൾ, എണ്ണക്കിണറുകൾ).
📘 അമോർട്ടൈസേഷൻ: അമൂർത്ത ആസ്തികൾ (പേറ്റന്റ്, പകർപ്പവകാശം, ഗുഡ്വിൽ).
📘 ശോഷണം: പ്രകൃതി വിഭവങ്ങൾ (ഖനികൾ, എണ്ണക്കിണറുകൾ).
📘 അമോർട്ടൈസേഷൻ: അമൂർത്ത ആസ്തികൾ (പേറ്റന്റ്, പകർപ്പവകാശം, ഗുഡ്വിൽ).
📝 പരീക്ഷാ ചോദ്യം (1 മാർക്ക് – 2020 IMP): 'അമോർട്ടൈസേഷൻ' എന്ന പദം ഇനിപ്പറയുന്നവയിൽ ഏതിന്റെ മൂല്യത്തിലെ കുറവുമായി ബന്ധപ്പെട്ടിരിക്കുന്നു?
ഉത്തരം: അമൂർത്ത ആസ്തി (Intangible asset).
ഉത്തരം: അമൂർത്ത ആസ്തി (Intangible asset).
3. മൂല്യത്തകർച്ചയുടെ കാരണങ്ങൾ
- തേയ്മാനം – ഉപയോഗം മൂലം.
- നിയമപരമായ അവകാശങ്ങളുടെ കാലാവധി അവസാനിക്കൽ.
- കാലഹരണപ്പെടൽ – സാങ്കേതിക മാറ്റങ്ങൾ മൂലം.
- അസാധാരണ ഘടകങ്ങൾ – അപകടം, തീ, വെള്ളപ്പൊക്കം.
4. മൂല്യത്തകർച്ചയുടെ ആവശ്യകത
- യഥാർത്ഥ ലാഭം കണ്ടെത്താൻ.
- യഥാർത്ഥ സാമ്പത്തിക സ്ഥിതി കാണിക്കാൻ.
- മാറ്റിസ്ഥാപിക്കുന്നതിനുള്ള ഫണ്ട് ശേഖരിക്കാൻ.
- ആദായനികുതി അമിതമായി അടയ്ക്കുന്നത് ഒഴിവാക്കാൻ.
- നിയമപരമായ ആവശ്യകതകൾ നിറവേറ്റാൻ.
5. മൂല്യത്തകർച്ച കണക്കാക്കുന്ന രീതികൾ
സ്ട്രെയിറ്റ് ലൈൻ രീതി (SLM): ഓരോ വർഷവും ഒരേ തുക മൂല്യത്തകർച്ച ഈടാക്കുന്നു. സൂത്രവാക്യം: (ആസ്തിയുടെ വില – അവശിഷ്ട മൂല്യം) / ഉപയോഗ കാലയളവ്.
റൈറ്റൺ ഡൗൺ വാല്യു രീതി (WDV): ഓരോ വർഷവും ആ വർഷത്തിന്റെ തുടക്കത്തിലെ പുസ്തക മൂല്യത്തിൽ ഒരു നിശ്ചിത ശതമാനം മൂല്യത്തകർച്ച ഈടാക്കുന്നു. മൂല്യത്തകർച്ച തുക ഓരോ വർഷവും കുറഞ്ഞുവരുന്നു.
| അടിസ്ഥാനം | സ്ട്രെയിറ്റ് ലൈൻ രീതി | റൈറ്റൺ ഡൗൺ വാല്യു രീതി |
|---|---|---|
| ഈടാക്കുന്ന അടിസ്ഥാനം | യഥാർത്ഥ വില | പുസ്തക മൂല്യം |
| വാർഷിക മൂല്യത്തകർച്ച | നിശ്ചിത തുക | കുറഞ്ഞുവരുന്നു |
| ആദായനികുതി നിയമം | അംഗീകരിക്കുന്നില്ല | അംഗീകരിക്കുന്നു |
| അനുയോജ്യത | അറ്റകുറ്റപ്പണി ചെലവ് കുറവുള്ള ആസ്തികൾ | സാങ്കേതിക മാറ്റങ്ങളുള്ള ആസ്തികൾ |
6. പ്രൊവിഷനുകളും കരുതൽ ധനവും
പ്രൊവിഷൻ: ലാഭത്തിനെതിരെ ഈടാക്കുന്ന തുക. നിലവിലെ അക്കൗണ്ടിംഗ് കാലയളവുമായി ബന്ധപ്പെട്ട എന്നാൽ കൃത്യമായ തുക അറിയാത്ത ബാധ്യതകൾക്കായി സൃഷ്ടിക്കുന്നു.
കരുതൽ ധനം: ലാഭത്തിൽ നിന്ന് മാറ്റിവെക്കുന്ന തുക. ബിസിനസിന്റെ സാമ്പത്തിക സ്ഥിതി ശക്തിപ്പെടുത്തുന്നതിനോ ഭാവിയിലെ ആകസ്മികതകൾ നേരിടുന്നതിനോ വേണ്ടിയാണ് ഇത് സൃഷ്ടിക്കുന്നത്.
കരുതൽ ധനം: ലാഭത്തിൽ നിന്ന് മാറ്റിവെക്കുന്ന തുക. ബിസിനസിന്റെ സാമ്പത്തിക സ്ഥിതി ശക്തിപ്പെടുത്തുന്നതിനോ ഭാവിയിലെ ആകസ്മികതകൾ നേരിടുന്നതിനോ വേണ്ടിയാണ് ഇത് സൃഷ്ടിക്കുന്നത്.
| പ്രൊവിഷൻ | കരുതൽ ധനം |
|---|---|
| ലാഭത്തിനെതിരെ ഈടാക്കുന്നു | ലാഭത്തിന്റെ വിനിയോഗം |
| നികുതി നൽകേണ്ട ലാഭം കുറയ്ക്കുന്നു | നികുതി ലാഭത്തെ ബാധിക്കില്ല |
| നിയമപ്രകാരം നിർബന്ധമാണ് | ലാഭമുണ്ടെങ്കിൽ മാത്രം സൃഷ്ടിക്കാം |
| ഡിവിഡന്റായി വിതരണം ചെയ്യാൻ പറ്റില്ല | ജനറൽ റിസർവ് ഡിവിഡന്റായി വിതരണം ചെയ്യാം |
7. റവന്യൂ കരുതലും ക്യാപിറ്റൽ കരുതലും
റവന്യൂ കരുതൽ: സാധാരണ പ്രവർത്തനങ്ങളിൽ നിന്നുള്ള ലാഭത്തിൽ നിന്ന് സൃഷ്ടിക്കുന്നു. ഡിവിഡന്റ് വിതരണത്തിന് ഉപയോഗിക്കാം.
ക്യാപിറ്റൽ കരുതൽ: മൂലധന ലാഭത്തിൽ നിന്ന് സൃഷ്ടിക്കുന്നു. ഡിവിഡന്റ് വിതരണത്തിന് ഉപയോഗിക്കാൻ പറ്റില്ല. മൂലധന നഷ്ടം എഴുതിത്തള്ളാനോ ബോണസ് ഷെയറുകൾ ഇഷ്യൂ ചെയ്യാനോ ഉപയോഗിക്കാം.
ക്യാപിറ്റൽ കരുതൽ: മൂലധന ലാഭത്തിൽ നിന്ന് സൃഷ്ടിക്കുന്നു. ഡിവിഡന്റ് വിതരണത്തിന് ഉപയോഗിക്കാൻ പറ്റില്ല. മൂലധന നഷ്ടം എഴുതിത്തള്ളാനോ ബോണസ് ഷെയറുകൾ ഇഷ്യൂ ചെയ്യാനോ ഉപയോഗിക്കാം.
8. രഹസ്യ കരുതൽ
ബാലൻസ് ഷീറ്റിൽ വെളിപ്പെടുത്താതെ സൂക്ഷിക്കുന്ന കരുതൽ ധനമാണ് രഹസ്യ കരുതൽ. ആസ്തികൾ കുറച്ചുകാണിക്കുക, ബാധ്യതകൾ കൂട്ടിക്കാണിക്കുക, അമിതമായി മൂല്യത്തകർച്ച ഈടാക്കുക തുടങ്ങിയ രീതികളിലൂടെ ഇത് സൃഷ്ടിക്കുന്നു.
📌 Important Exam Questions (പ്രധാന പരീക്ഷാ ചോദ്യങ്ങൾ)
- മൂല്യത്തകർച്ച എന്താണ്? അതിന്റെ ആവശ്യകത എന്ത്?
- മൂല്യത്തകർച്ച കണക്കാക്കുന്ന രീതികൾ വിശദീകരിക്കുക.
- സ്ട്രെയിറ്റ് ലൈൻ രീതിയും റൈറ്റൺ ഡൗൺ വാല്യു രീതിയും തമ്മിലുള്ള വ്യത്യാസങ്ങൾ എഴുതുക.
- പ്രൊവിഷൻ, കരുതൽ ധനം എന്നിവയുടെ അർത്ഥവും വ്യത്യാസങ്ങളും വിശദീകരിക്കുക.
- റവന്യൂ കരുതലും ക്യാപിറ്റൽ കരുതലും തമ്മിൽ വേർതിരിക്കുക.
- തന്നിരിക്കുന്ന വിവരങ്ങളിൽ നിന്ന് മൂല്യത്തകർച്ച കണക്കാക്കി യന്ത്രങ്ങളുടെ അക്കൗണ്ട് തയ്യാറാക്കുക.
മൂല്യത്തകർച്ചയും പ്രൊവിഷനുകളും കരുതൽ ധനവും അക്കൗണ്ടിംഗിലെ നിർണായക ഘടകങ്ങളാണ്. ഓരോ രീതിയുടെയും സവിശേഷതകൾ മനസ്സിലാക്കുകയും പ്രായോഗിക പ്രശ്നങ്ങൾ പരിശീലിക്കുകയും ചെയ്യുക.
I hope the given Higher Secondary Plus One Accountancy Chapter Wise Quick Revision Notes based on CBSE NCERT syllabus will help you. If you have any query, drop a comment below.
