Core concepts
- 01Depreciation: systematic allocation of depreciable amount of an asset over its useful life.
- 02Causes: wear and tear, obsolescence, efflux of time, accidents.
- 03Methods: Straight Line Method (SLM) and Written Down Value (WDV).
- 04AS-10 (PPE): depreciation reviewed at each year-end; useful life and residual value re-estimated.
- 05Change in method is a change in accounting estimate (prospective effect).
Flowchart
Cost of Asset | v Less: Residual Value | v Depreciable Amount | +---> SLM: equal per year +---> WDV: % on book value
Exam-critical pointers
- ⭐Sinking fund method involves investment of annual provision outside the business.
- ⭐Schedule II of Companies Act 2013 prescribes useful lives — not rates.
- ⭐On revaluation upward: surplus to Revaluation Reserve; depreciation on revalued amount.
- ⭐8-mark sum: Asset Disposal A/c with multiple purchases / part-year depreciation.
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