DEPRECIATION

DEFINITION

Depreciation is the reduction in the value of assets due to wear and tear.

TYPE

• Straight Line Method (SLM)
• Written Down Value (WDV) Method

PROVISION FOR DEPRECIATION

The function of a depreciation provision is to make a company’s balance sheet more accurately reflect the current value of the investments it has made in fixed assets over time.

BENEFITS

• An accurate picture of financials
• For Tax purpose
• Matching concept

JOURNAL ENTRY

On purchase of Fixed Asset

Fixed Asset A/c                                 Dr     1000

Cash A/c                                                                 1000

Depreciation A/c                                Dr    100

Accumulated Depreciation A/c                                    100

JOURNAL ENTRY ON SALE OF FIXED ASSET

Cash A/c                                             Dr    2000

Accumulation of depreciation A/c           Dr    100

Fixed Asset                                                                900

Profit on sale of Fixed Asset A/c                                   1200