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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