How to maintain depreciation accounting and how to calculate depreciation for fixed assets? Author: Ckrishwa
The term depreciation in accounting is connected with the fixed assets of a company or a business organization. It is common that the fixed assets like land, buildings, warehouses, machineries, furniture and fixtures, vehicles like cars, Lorries, office equipments like computers, etc., are part and parcel of a company or a business organization. These fixed assets are nerve of any business for carrying out the day to day activities and for long term activities of the business.
Since the value of the fixed assets is depreciatable by value every year there needs an accounting for providing reasonable relief to the company or business by way of depreciation accounting.
Depreciation accounting is deduction of some amount from the value of the fixed assets at a given percentage for a given period or till the asset has been disposed of.
The amount thus deducted from the fixed assets value at a given percentage as depreciation will be treated as expenditure to the business or company and will be debited under depreciation account.
Percentage of depreciation to deduct from the fixed assets will vary as per the Government regulations or companies act. Sometimes it may be 10% of the fixed assets value or 5% of the fixed assets value. The percentage may also vary from fixed asset category to fixed asset category. Percentage of depreciation may not be the same to the entire fixed assets category.
Depreciation statement is a mandatory requirement by the auditors of the company or business for certifying the accounts.
Depreciation value as shown in the depreciation statement should be based on the fixed assets register. Depreciation statement has to be prepared for every accounting year or financial year. Values as shown in the depreciation statement should tally with the value arrived in the fixed assets register.
Depreciation statement should contain the details and description of asset, original asset value, written down value at the beginning of the financial year, additional asset purchased during the financial year, total original value of the asset and written down value of the asset, depreciation provided for the current financial year and net asset value at the end of the current financial year.
The main purpose of depreciation in accounting is that the fixed assets are depreciatable by its value every year. In order to compensate the loss of value of the fixed assets by its usage or age, the loss is compensated proportionate at a given percentage as fixed by the proper authority like Government or as per the companies act, till the asset value becomes nil or up to the period the asset has been disposed of.
