Faa ppt
Download as PPTX, PDF0 likes158 views
Depreciation is the reduction in value of an asset due to wear and tear, age, or obsolescence. There are two main methods for calculating depreciation - straight line and written down value. The appropriate depreciation method depends on factors like the type and nature of the asset and prevailing business circumstances. Accounting standards require consistent application of the selected depreciation method each period. Changes to the depreciation method require recomputing depreciation from the date of acquisition and adjusting the accumulated depreciation. The objectives of depreciation accounting standards include uniformity in company accounts within a country and international comparability.
Faa ppt
- 2. 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 changes.
- 3. Applicability of the Accounting Standard 6 This accounting standard is applicable to all depreciable assets except, the following: (i) Forests, plantations and similar regenerative natural resources; (ii) Wasting assets including expenditure on the exploration for and extraction of minerals, oils, natural gas and similar non-regenerative resources; (iii) Expenditure on research and development; (iv)Goodwill; (v) Live stock- Cattle, Animal Husbandry
- 4. Methods of depreciation There are two methods of depreciation. These are: i) Straight Line Method (SLM) ii) Written down value Method (WDV) Selection of appropriate method It depends upon following methods:- •Type of assets •Nature of assets •Circumstances of prevailing business Note- A combination of more than one standards may be used Accounting treatment- selected depreciation methods should be applied consistently applied from period to period
- 5. Change in depreciation methods: •Compliance of statute •Compliance of accounting standards •For more appropriate presentation of the financial statements
- 6. Procedure to be followed in change of methods:- •Depreciation should be recomputed applying new method from date of acquisition/installation till date of change of method. •Difference between total depreciation under two methods and accumulated depreciation under the old method till date of change may be surplus or deficiency. •Resultant surplus credited to profit and loss a/c under head “depreciation written back”. • Resultant deficiency charged to profit and loss a/c. Change in depreciation method should be treated as change in accounting policy (as per AS 5) and its effect should be quantified and disclosed.
- 7. When there is change in estimated useful life of assets, outstanding depreciable amount on the date of change in estimated useful life of asset should allocated over the revised remaining useful life of assets.
- 8. Objectives In general • The introduction accounting standards there was uniformity in the accounts of various companies within India. • Converged Accounting Standards along with IFRS was introduced so that accounts of India can be compared with companies of the world Related to Depreciation • It will charged according to the shelve life of fixed asset.
- 9. Recommendations • There are two types of depreciation which are:- • Straight Line Depreciation Method • Written Down Value Method It would be better if only one kind of depreciation method is followed all over the world • There should be such accounting so that tax accounting and financial statement accounting could be done together • Slabs of tax accounting should be same with the financial statements.