Depreciation Account
Such accumulation of depreciation enables that the asset account need not be disturbed in any way and it continues to be shown at its original cost over the successive years of its useful life.
Some basic characteristic of this method of recording depreciation are:
- Asset account continues to appear at its original cost year after year over its entire life;
- Depreciation is accumulated on a separate account instead of being adjusted into the asset account at the end of each accounting period.
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1. For recording purchase of asset (only in the year of purchase) Asset A/c Dr. (with the cost of asset including installation, expenses etc.) To Bank/Vendor A/c (cash/credit purchase) 2. Following two journal entries are recorded at the end of each year: (a) For crediting depreciation amount to provision for depreciation account Depreciation A/c Dr. (with the amount of depreciation) To Provision for depreciation A/c (b) For charging depreciation to profit and loss account Profit & Loss A/c Dr. (with the amount of depreciation) To Depreciation A/c 3. Balance sheet treatment In the balance sheet, the fixed asset continues to appear at its original cost on the asset side. The depreciation charged till that date appears in the provision for depreciation account, which is shown either on the “liabilities side” of the balance sheet or by way of deduction from the original cost of the asset concerned on the asset side of the balance sheet. |
Example:
- The books of account close on March 31 every year; and
- The firm charges depreciation to the asset account.
|
Date |
Particulars |
L.F. |
Debit Amount Rs. |
Credit Amount Rs. |
|
2002 Apr. 01
Apr. 01
|
Plant A/c Dr. To Bank A/c (Purchased plant for Rs. 5,00,000) Plant A/c Dr. 50,000 To Bank A/c 50,000 (Expenses incurred on installation)
To Plant A/c 54,000 (Depreciation charged on asset)
To Depreciation A/c 54,000 (Depreciation debited to profit and loss account) |
5,00,000
50,000
|
5,00,000
50,000
|
Plant Account
| Dr. | Cr. | ||||||
|
Date |
Particulars |
J.F. |
Amount Rs. |
Date |
Particulars |
J.F. |
Amount Rs. |
|
2002 Apr. 01
2003 Apr. 01
2004 Apr. 01 2005
Apr. 1
|
Bank Bank (Installation expenses)
Balance b/d
Balance b/d
Balance b/d 3,88,000 |
5,00,000 50,000
5,50,000 ________
4,96,000 ________ 4,96,000 ________
4,42,000 _______ 4,42,000 ________
3,88,000 |
2003 Mar. 31
2004 Mar. 31
2005 Mar 31 |
Depreciation Balance c/d
Depreciation
Depreciation Balance c/d |
_______ 5,50,000 _______
54,000 4,42,000 4,96,000 _______ 3,88,000 _______ 4,42,000 _______ |
