Method of Providing Depreciation
Method of Providing
Depreciation
There
are mainly three methods of charging depreciation as per AS 10.
1. Straight Line Method:- In this
method a fixed Amount is written off during the working life till asset become
nil. This method is simple and accurate. This method is also known as fixed
Installment method /Original cost method. Lease holds property generally
depreciated by fixed installment method.
Straight Line Depreciation= Cost of
Assets-Scrap value
Useful life
2. Reducing Balance Method/ diminishing
value method/ WDV method:- Under this method, a fixed percentage of
diminishing value of asset is written off each year. Annual charge of
depreciation decreases from year to year.
3. Unit of production method- In
this method depreciation is charged on the basis of expected use or unit of
production.
CHANGE IN METHOD OF DEPRECIATION:
According to AS 10 issued by ICAI, the depreciation method selected should be
applied consistently,to provide comparability of the results of operations of
the enterprise from period to period.
Ø A change from one method of providing
depreciation to another method should be treated as change in accounting
estimate.
Ø When such a change in the method of
depreciation should apply on all assets existing in the group with prospective
effect only.
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