METHODS FOR CHARGING DEPRECIATION

There are various methods of depreciation:
1. Straight line method
2. Depletion or Output method
3. Machine hour rate method
4. Diminishing Balance or Written down method
5. Sum of digits method
6. Annuity method
7. Sinking fund method
8. Insurance policy method
Among the above mentioned methods, Straight line method and Diminishing balance or
written down method are more important methods. These two methods are preferable
and renowned methods among the industrialists in charging the depreciation on the fixed
assets. The first method is as follows
Straight Line Method
This method, depreciation is calculated as a fixed proportion on the original value of the
asset. The depreciation is charged as fixed in volume on the original value of the asset
at which it was purchased. The original value of the asset is nothing but the purchase
value of the asset.
Illustration
Mr. Shankar purchased machine for Rs. 90, 000 on 1st April 1999. It probable working
life was estimated at 5 years and its probable scrap value at the end of that time is Rs.
10, 000. You are required to prepare necessary account based on straight
line method of depreciation for five years
To prepare the various accounts of the enterprise connected to depreciation is as follows
The depreciation charge process is carried out in three stages
l The asset to be initially purchased- Purchase entry has to be carried out. How the
purchase is made ? While making the purchase there are two different accounts
get affected which are normally known as real accounts. At the moment of purchase
on one side the asset is coming inside the firm ; on the other side the cash resources
are depleted due to the payment of purchase bill of the asset.

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