Question

Write two methods to calculate depreciation?

Answer 1

Answer:

straight line method

written down value method

Answer 2

ANSWER :

In accounting, depreciation is the process of allocating the net cost of fixed assets over its estimated useful life. The word "Depreciation" has been derived from the Latin word "Depretum". 'De' means 'decline' and 'pretum' means 'price'. Hence, "Depreciation" mean "decline in price". In other words, depreciation is the loss or decrease in the value of fixed assets due to their constant use and expiry of time.

❖ Two methods of providing depreciation on assets are :-

• [1] Straight Line Method or Original Cost Method or Fixed Instalment Method : Straight Line Method or Original Cost Method or Fixed Instalment Method is a method of providing depreciation under which depreciation is charged at a fixed percentage on the original cost of the asset. Under this method, the amount of depreciation for a particular asset remains same from year to year.

• [2] Diminishing Balance Method or Written Down Value Method or Reducing Balance Method : Diminishing Balance Method or Written Down Value Method or Reducing Balance Method is a method of charging depreciation under which a fixed rate or percentage of depreciatuin is charged each year on the diminishing value of the asset till the amount is reduced to its scrap value. Under this method, as the value if asset goes on diminishing year after year, the amount of depreciation charged every year also goes on diminishing; although the rate of the depreciation remains fixed.

❖ Some other methods of charging depreciation on fixed assets are :-

• ➛ Annuity Method.

• ➛ Depreciation Fund Method.

• ➛ Insurance Policy Method.

• ➛ Revaluation Method.

• ➛ Depletion Method.

• ➛ Machine Hour Rate Method.