Class 11 Accountancy - Chapter Depreciation, Provisions and Reserves NCERT Solutions | Explain determinants of the amount of de
Explain determinants of the amount of depreciation.
Factors that determining the Amount of Depreciation are as follows:-
1) Original cost of the asset: It implies the cost incurred on its acquisition, installation, commissioning and for additions or improvements thereof which are of capital nature. The cost of asset include the purchase price, less any trade discount plus all the costs essential to bring the asset to a usable condition
2) Estimated life: It implies the period over which an asset is expected to be used. Useful life refers to the window of time that a company plans to use an asset. Useful life can be expressed in years, months, working hours, or units produced. Therefore, the useful life of an asset is generally to be taken in terms of asset’s expected use. This estimated useful life of an asset determines the rate or the amount of depreciation.
3) Residual value: It implies the value expected to be realized on its sale on the expiry of its useful life. This is otherwise known as scrap value or turn-in value. It is the amount of money the company expects to recover, less disposal costs, on the date the asset is scrapped, sold, or traded in. Depreciation should be determined after deducting the estimated scrap value from the cost of the asset.
More Questions From Class 11 Accountancy - Chapter Depreciation, Provisions and Reserves
- Q:-
State whether the following statements are true or false:
- Depreciation is a non-cash expense.
- Depreciation is also charged on current assets.
- Depreciation is decline in the market value of tangible fixed assets.
- The main cause of depreciation is wear and tear caused by its usage.
- Depreciation must be charged so as to ascertain true profit or loss of the business.
- Depletion term is used in case of intangible assets.
- Depreciation provides fund for replacement.
- When market value of an asset is higher than book value, depreciation is not charged.
- Depreciation is charged to reduce the value of asset to its market value.
- If adequate maintenance expenditure is incurred, depreciation need not be charged.
- Q:-
State briefly the need for providing depreciation.
- Q:-
Give four examples each of ‘revenue reserve’ and ‘capital reserves’.
- Q:-
Explain the concept of depreciation. What is the need for charging depreciation and what are the causes of depreciation?
- Q:-
Give four examples each of ‘provision’ and ‘reserves’.
- Q:-
Name and explain different types of reserves in detail.
- Q:-
What are the effects of depreciation on profit and loss account and balance sheet?
- Q:-
State with reasons whether the following statements are True or False ;
(i) Making excessive provision for doubtful debits builds up the secret reserve in the business.
(ii) Capital reserves are normally created out of free or distributable profits.
(iii) Dividend equalisation reserve is an example of general reserve.
(iv) General reserve can be used only for some specific purposes.
(v) ‘Provision’ is a charge against profit.
(vi) Reserves are created to meet future expenses or losses the amount of which is not certain.
(vii) Creation of reserve reduces taxable profits of the business. - Q:-
Discuss in detail the straight line method and written down value method of depreciation. Distinguish between the two and also give situations where they are useful.
- Q:-
Basaria Confectioner bought a cold storage plant on July 01, 2014 for ₹ 1,00,000. Compare the amount of depreciation charged for first three years using:
- Rate of depreciation @ 10% on original cost basis;
- Rate of depreciation @ on written down value basis;
- Also, plot the computed amount of depreciation on a graph.
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