Tuesday, October 7, 2014

Recording Depreciation

Depreciation is directly charged against the asset by debiting Depreciation account and crediting the Asset account. Depreciation account is closed by transferring to Profit and Loss account at the end of the year. The entries will be as under:

1) For the amount of depreciation to be provided at the end of the Year:
                        Depreciation A/c….. Dr.
                        To Asset A/c.

2) For transferring the amount of depreciation at the end of the year.
                        Profit and Loss A/c….. Dr.
                        To Depreciation A/c.

Asset Account will be shown at cost less depreciation i.e., written down value at the end of the year in the Balance sheet

Now Let Us look at an example and learn about passing journal entries and preparing fixed asset account and depreciation account for three years.

Ram & sons purchased a fixed asset on 1.4.2006 for Rs.3, 00, 000. Depreciation is to be provided at 10% annually according to the Straight line method. The books are closed on 31st March every year.

Amount of Depreciation = 300,000 * (10/100)
                                          = 30,000




In the Books of Rajesh & Co.
Journal Entries
Date Particulars L.F.  Debit  Credit
1-Apr-06 Fixed asset A/c Dr 3,00,000
To Bank A/c 3,00,000
31-Mar-07 Depreciation A/c Dr 3,00,000
To Fixed asset A/c 3,00,000
(Depreciation provided)
31-Mar-07 Profit & Loss A/c Dr 3,00,000
To Depreciation A/c 3,00,000
(Depreciation transferred
to Profit & Loss A/c)
31-Mar-08 Depreciation A/c Dr 3,00,000
To Fixed asset A/c 3,00,000
(Depreciation provided)
31-Mar-08 Profit & Loss A/c Dr 3,00,000
To Depreciation A/c 3,00,000
(Depreciation transferred
to Profit & Loss account)
31-Mar-09 Depreciation A/c Dr 3,00,000
To Fixed asset A/c 3,00,000
(Depreciation provided)
31-Mar-09 Profits & Loss A/c Dr
To Depreciation A/c
(Depreciation transferred
to Profit & Loss A/c)



Ledger Account
Fixed Asset Account
Date.  Particulars  Rs.  Date  Particulars  Rs
1-Apr-06 To Bank A/c 3,00,000 31-Mar-07 By Depreciation A/c 30,000
By Balance c/d 2,70,000
3,00,000 3,00,000
1-Apr-07 To Balance b/d 2,70,000 31-Mar-08 By Depreciation A/c 30,000
By Balance c/d 2,40,000
2,70,000 270,000
1-Apr-08 To Balance b/d 2,40,000 31-Mar-09 By Depreciation A/c 30,000
By Balance c/d 2,10,000
2,40,000 2,40,000
By Depreciation A/c 30,000
1-Apr-09 To Balance b/d 2,10,000 By Balance c/d 2,10,000

Depreciation A/c
Date.  Particulars  Rs.  Date  Particulars  Rs
31-Mar-07 To Fixed Asset A/c 30000 31-Mar-07 By Profit & Loss A/c 30,000
30000 30000
31-Mar-08 To Fixed Asset A/c 30000 31-Mar-08 By Profit & Loss A/c 30000
30000 30000
31-Mar-09 To Fixed Asset A/c 30000 31-Mar-08 By Profit & Loss A/c 30000
30000 30000




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