Ch 7Depreciation — Class 11 Book-Keeping and Accountancy, concept-first.

Every business that owns fixed assets — machinery, furniture, buildings, vehicles — knows that these assets do not last forever.

A fixed asset can lose value for several distinct reasons, and a student is expected to be able to list and briefly explain each.

If a firm did not charge depreciation on its fixed assets, its final accounts would tell a misleading story in several distinct ways. The following reasons are each a separate, examinable point.

The amount of depreciation charged each year under any method is not guessed at random — it depends on a small set of measurable factors.

The Straight Line Method (SLM) — also called the Fixed Instalment Method or the Original Cost Method — is the simplest and most widely used method of depreciation, and the first of the two methods on…

The Written Down Value (WDV) Method — also called the Diminishing Balance Method or the Reducing Balance Method — is the second method on the syllabus, and it takes a fundamentally different approach…

A student is often asked to distinguish directly between the Straight Line Method and the Written Down Value Method, so it is worth setting the two side by side.

Having calculated the amount of depreciation, the next question is how to record it in the books. There are two accepted approaches; this section covers the simpler and more commonly used one first —…

The second, more informative approach keeps the Asset Account permanently at original cost and accumulates all depreciation separately in a Provision for Depreciation Account (also called the Accumula…

Sooner or later, most fixed assets are sold, scrapped, or exchanged before or at the end of their useful life.