Deprecation secound year commarce.

2nd year Commerce.

by: M.A. f Saleem.

• Deprecation:

Depreciation is the process of allocating the cost of assets and their useful working life.

The amount of that has been allocated to expenses.

All additional expense calculated is called “Accumulated depreciation”.

Book Value:

When we buy any assets for any amount, the paid amount is called “book value”.

Amortization:

Amortization is the process by which we record the increase in the value of intangible assets.

Delplation:

The decline in the value of natural resources is called “Depletion”.

Q: How to determine the cost of the Machine?

1.     List price

2.     Trade Discount

3.     2/10 –n/30 credit term (2-discount or 10 discount period)

4.     Cash Discount

5.     Additional expenditure

6.     Foundation Charges

7.     Insurance/Fire/ In transit.

8.     Not Include

9.     Damage Charges

10.  3-years fire Insurance

11.  Over handling after 2-mounths.

Assets

Current Assets                                                                          Non-current assets.

Non-current assets.

 

 

Tangible assets                                                                                                 IntangibleAssets.

                                                                  

Format

Years	Cost of the machine	Deprecation	Accumulated deprecation	Book value.

 

Expenditure

There are two types of expenditures:

1.     Capital expenditures:

2.     Revenue Expenditures:

Capital expenditures:

Capital expenditures are those expenditures that increase the life of assets.

Example:          Installation charges,

Test-run cost, etc.

Revenue Expenditure:

 Revenue expenditures are short-term expenses used in the current period or typically within one year.

Example:    3-year fire insurance

Damages charges.

Method of Deprecation:

1. Straight Line Method

2.     Diminishing Balance Method

3.     Sum of year Digit Method

4.     Working Hour Method

5.     Units of Production Method

Question

1.     Cost of the machine

2. General journal

3.     T-Accounts

4.     Balance Sheet

• Elements of Deprecation:

1.     Total Cost

2.     Estimated life ( k.m, units, hours, etc)

3.     Total useful life, Salvage value, residual value, Resale value, scarp value, Disposal value.

Adjusting Entries

Datae	Particular	P/R	Debit	Credit

Closing Entries

 

Datae	Particular	P/R	Debit	Credit

 

 

Depreciable cost:

Cost                                   xxx

Less: Salvage Value                        (xxx)

Total                                  xxx

Fromat

Total cost of the Machine

List price                                                                            xxx

Less: Trade Discount xxx

Invoice price                                                                 xxx

Less: Cash Discount                                                                       xxx

      Cash price                                                                    xxx

Add: Other Expenditure:

Installation Charges                                                            xxx

Fright-in                                                                             xxx

Import duty                                                                         xxx

Custom duty                                                                       xxx

Octorie duty                                                                        xxx

Foundation Charges                                                            xxx

                  Total other expenditure                                      xxx

Cost of Machine                                                                 xxx

Not included in other expenditure:

1.     Fire

2.     During installation machine was damaged and repaired

3. A loan taken from the Bank for the purchase of a machine and paid interest.

4.     3-year fire insurance(capital and revenue expenditure)

5.     Packing Charges.

6.     Paid Insurance premium

7. License fee

8.     Free fire insurance policy for 4 years

9.     Property tax paid.

 

·      Format Determine Deprecation Method:

1. Straight line Method:

Formula:

Annual Depreciation expense = 

Or

Annul Depreciation expense  =  (Cost –Salvage value) x Rate.

 

2.    Diminishing Balance Method:

Cost x Rate.

3.    Sum of year digit Method:

N-fraction N=

N=number of years

Depreciable Cost = Cost –salvage value.

4.    Working Hour Method:

Depreciation expense per hour =

5.    Units of production Method:

Depreciation expense per Unit =

Per unit x Given year.

·      T-Accounts in skeleton form:

Depreciation Expense.

 

 

Allowance for Deprecation

 

 

·      Balance Sheet

ABC&Co.

Balance Sheet (partial)

As on…………

Assets	Equities
Fixed Assets(cost)                                                  xxx
Less: Accumulated dep/Allowance for dep        (xxx)
Book value                                                        xxx