DEPRECIATION & ITS ACCOUNTING
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Free sample — 8 of 66 rapid-fire Q&A cards.
What is depreciation in the context of accounting?
Depreciation is the systematic allocation of the cost of a tangible fixed asset over its useful life, reflecting the consumption of economic benefits embedded in the asset.
What is the primary purpose of charging depreciation on fixed assets?
To allocate cost of asset over its useful life.
Which accounting standard governs depreciation accounting in India?
AS-6 (Accounting Standard 6) issued by the ICAI governs depreciation accounting in India, though it has been largely superseded by Schedule II of the Companies Act 2013 for companies.
Under the Straight Line Method, how is annual depreciation calculated?
Cost minus residual value divided by useful life in years.
What is the Straight Line Method (SLM) of depreciation?
Under SLM, a fixed and equal amount of depreciation is charged every year throughout the useful life of the asset, calculated as (Cost - Residual Value) / Useful Life.
What is 'block of assets' as used in income tax depreciation?
Group of assets of same class eligible for same depreciation rate.
What is the Written Down Value (WDV) method of depreciation?
Under WDV, depreciation is charged at a fixed percentage on the book value (written down value) at the beginning of each year, resulting in higher depreciation in earlier years and lower in later years.
What is the depreciation rate on buildings under Income Tax Act for banks?
10% under WDV method on building used for business.
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