Accounting Standard 6

1. DEPRECIATION WEAR AND TEAR

4. Relate to codification of generally accepted accounting principles(GAAP)

5. In 1973 , an international body,namely,”the international accounting

6. standards committee,orIASC”with 16 accounting professional bodies from

7. 9 nations

8. The indian counterpart of the IASC ,namely the institute of chartered

9. accountants of India( ICAI) has also formulated and issued,with the

10. international accounting standards, the following 28 accounting standards

11. referred to as Indian accounting standards or AS

12. This standard was first issued in november 1985 and made mandatory from

13. 1.4 1995

14. The accounting standard(AS)6,’depreciation accounting’,issued by the

17. Have a limited useful life

18. Held by an enterprise for use in the production or supply of goods and services

19. The period over which a depreciable asset is expected to be used by the enterprise

21. By expiry of time

22. By obsolescene

23. By depletion

24. Permanent fall in price

26. For showing asset at fair and true value in the balance sheet.

27. Provision of funds for replacement of assets.

28. Ascertaining accurate cost of production.

30. Estimated useful life of the asset.

31. Estimated scrap value.

32. Chances to obsolescene.

33. Addition to assets.

36. Passage of time ACCIDENT PERMANENT FALL IN PRICE

37. NEEDS Determination of net profit or net loss. Showing assets at fair and true value in the balance sheet. Provision of funds for replacement of assets. Ascertaining accurate cost of production. Distribution of dividend out of profit only. Avoiding over payment of income tax.

38. FACTORS OF DETERMINATION OF DEPRECIATION Original cost of fixed asset i.e., purchase price plus freight and installation expenses. Estimated amount of expenditure on repairs during the useful life. Estimated useful life of asset after which it will be discarded. Estimated residual or scrap value. Possibility of obsolescence. Interest on investment-the amount invested on purchase of asset, if it had been invested in some other investment what interest would have been earned.

40. Estimated residual value

43. STRAIGHT LINE METHOD DISADVANTAGES It ignores the fact that the service yielding ability of the asset fall while the repairs & maintenance cost increase with the passage of time. If an additional asset is acquired, the amount to be charged as depreciation needs to be calculated. ADVANTAGES It is simple to calculate & easy to understand. It can reduce the book value of the asset to zero. The valuation of the asset each year in the balance sheet is reasonably fair.

44. WRITTEN DOWN VALUE METHOD Amount of depreciation goes on declining every year and is recognized by income tax law. LIFE OF ASSETS

46. Balanced effect on profit or loss account of different years.

47. Approved method by income . . tax authorities.

48. Logical method.

50. No funds for replacement.

51. Loss of interest.

52. Higher rate of depreciation.

54. Disclosure in the F.S The depreciation methods used The total depreciation for the period for each class of assets The gross amount of class of assets and related accumulated depreciation Other accounting policies ( relevant to depreciation) The depreciation rates or useful lives of assets if they are different from principal rates A change in the method of depreciation is considered as a change in accounting policy

56. Depreciation should be provided on immovable assets

57. The number of shifts (double or multiple) for which the assets has been used should be considered for depreciation

59. 2. Different accounting policies for depreciation are adopted by different enterprises. Disclosure of accounting policies for depreciation followed by an enterprise is necessary to appreciate the view presented in the financial statements of the enterprise.