As 6 depreciation accounting pdf

Based on the estimated useful life, if the depreciation rate is lower than the rate prescribed in Schedule XIV, companies will be required to approach central government in this regards.

Note : Under the International accounting standard or for that purpose US GAAP, depreciation is provided considering the best estimate of useful life of the asset.

The following abstract from the financial statement of Cathay Pacific Airways will show that enterprise is at liberty to evaluate the estimate useful life of Fixed Asset. Annual depreciation charges to write down the original cost of aircraft to estimated residual values are based on actual operational usage of the relevant aircraft as a proportion of its total estimated operational life. The useful operational life of an aircraft is determined by reference to its anticipated aircraft flight cycle while in service of the company.

However, if the aircraft is held under a finance lease, the depreciable life of the aircraft is limited to the lease term unless a purchase option is held. A flight cycle is defined as one take-off and one landing. Can R Ltd. Depreciation method is selected based on various important factors e. AS 6 Depreciation, mentions, a combination of more than one method is some times used, meaning thereby that for few fixed assets straight line method can be adopted whereas for other fixed assets written down value method can also be adopted.

Accordingly R Ltd. P Ltd. Due to technical evaluation, the estimated useful life of certain fixed assets is less as compared to life of assets as indicated by rates prescribed in schedule XIV of the Companies Act, Is P Ltd.

Schedule XIV, the depreciation provision is appropriately computed by applying a higher rate. Hence, P Ltd. Second and important issue that arises, how P Ltd. Since, this gives rise to a change in estimate and not a change in method, enhanced depreciation should be provided prospectively i.

With effect from , in respect of additions to, plant and machinery, P Ltd. Is contention of P. As per AS 6, the method of depreciation is applied consistently to provide comparability of the results of the operation of the enterprise from period to period. A change from one method of providing depreciation to another is made only if the adoption of the new method is required by statute or for compliance with an accounting standard or if it is considered that the change would result in a more appropriate preparation or presentation of the financial statements of the enterprise.

When such a change in method of depreciation is made, depreciation is recalculated in accordance with the new method from the date of the asset coming into use. Accordingly, P Ltd. S Ltd. Should S Ltd. As per AS 6, where the depreciable assets are revalued, the provision for depreciation should be based on the revalued amount and on the estimate of the remaining useful lives of such assets.

Accordingly S Ltd. In connection therewith, S Ltd. Such transfer from Revaluation Reserve should be shown in the Profit and Loss account separately.

In case of addition to fixed assets, which otherwise forms an integral part of the existing asset, how is depreciation provided on such addition? AS 6 Depreciation accounting states that any addition or extention to an existing asset which is of a capital and which becomes an integral part of the existing asset is depreciated over the remaining useful life of that asset.

However, any addition or extention which retains a separate identity and is capable of being used after the existing asset is disposed of, is depreciated independently on the basis of an estimate of its own useful life.

M Ltd. During accounting year , M Ltd. Cement division of M Ltd. Can M Ltd. AS 6 Depreciation, mentions that the management of a business selects the most appropriate method s based on various important factors e. Estimated scrap value if any at the end of useful life of the asset.

Accounting entry Profit and Loss Account Dr. Accounting entries: Depreciation Account Dr. Estimated useful life and scrap value were 10 years and Rs. Calculate depreciation using sum of years digit method. Life 10 years. Scrap Value is Rs. Expected to produce 1,50, units during its life time. Determine value of depreciation each year using production of units method. The books are closed on 31st December every year.

Show the Machinery Account and Depreciation Account for the year July To Bank 14, Dec. By Depr. July 1 To Bank 14, Dec.

On July 1, another machinery for Rs. On 1st July, the machinery purchased on 1st January, having become obsolete was auctioned for Rs. Prepare machinery account. On January 1, another machinery for Rs. In , however, the firm changed this method of providing depreciation and adopted the method of providing 5 per cent per annum depreciation on the original cost of the machinery with retrospective effect.

II Rs. Estimated useful life was 10 years and scrap value at the end was expected to be Rs. To Balance 20,00, Dec. Installation expenses were Rs. Residual value after 5 years Rs. On Depreciation for the first year under sum of years digits method will be a Rs. Technological II. Improvement in production method.