Question

Describe the methods of recording depreciation in the books of account. How is the balance of the provision for depreciation account shown in the Balance Sheet?P

Answer 1

Two methods of recording depreciation in the books of accounts :

1. When a provision for depreciation account is not maintained :

Under this method, the amount of depreciation is charged to the Depreciation Account and credit to the asset account. The asset account appears in the Balance sheet at the written down value(i.e., the value remaining after deducting depreciation). The depreciation account , being nominal account is transferred to the Profit and Loss A/C

2.When a provision for depreciation account is maintained :

Under this method, the amount of depreciation to be provided in a particular year is debited to the profit and loss A/C and the corresponding credit being given to Provision for depreciation Account .

The asset account appears in the books at its original value and the Provision for depreciation appears on the liablities side.