What is Depreciation in Accounting
What are Depreciation? When a company or a firm starts a business, the company has to purchase all kinds of Assets to run that company, but when some time passes, the value of the assets decreases, because of the depreciation on the assets. (Depreciation), Depreciation is always applied on fixed assets, in simple language, Depreciation means that the value of assets decreases. Depreciation is different for each asset. And when a company maintains its account, then it has to apply Depreciation on its assets every year, if the company buys any asset in 40000 /- then it has to apply Depreciation every year. And gradually the value of the assets decreases. Let’s understand.
How to Calculate Depreciation on Fixed Assets
When a company buys assets for business, it does not do it for the purpose of selling assets, the company buys assets for its own use, such as plant, machinery, computers, printers, land, building, office, bike, cars. , buses, furniture etc., and on all these the company has to apply Depreciation at the end of the year, but there are some assets on which any company or any firm does not have to give any kind of Depreciation like land, live Depreciation of any kind is not imposed on stock, goodwill, copyright these assets.
Depreciation is a Type of Indirect Expense which is always incurred on fixed assets, and this company has to be applied every year on its fixed asset, no company can impose depreciation on its assets according to its own. It is determined by the government that how much depreciation will be taken on which assets. And the company has to reduce the value of the assets accordingly by applying Depreciation on its assets.
Depreciation Entry in Tally with Examples
Let’s understand with the following examples.
When the company purchases a computer, the company enters the computer purchase in its tally book.
1/4/ to 30/9/
|Cash / Bank||40000|
And when Depreciation is applied then these entries are made.
We put 40% Depreciation on the computer, due to which the value of the computer is now 24000/- only. Similarly, depreciation has to be applied on all the assets when the Balance Sheet is finalized on 31st March.
But the rules of the government are that if you have purchased any fixed asset before 30 September, then 100% depreciation is applied on that asset. And if you have bought assets after 30 September then only 50% Depreciation charge will be levied on that asset, understand through entry.
|Bank / Cash||40000|
And when will enter tally on 31st March
In this way the value of computer will be 32000/- on 31/3/. And when Depreciation will be applied on 31/3/ then full 100% Depreciation will be charged on 32000/-.
Methods of Depreciation Calculation in Tally
- Straight line method
- Revaluation methods
- Reducing balance methods / written down value method
- Sum of digit method
- Production output method / units of production method
According to all methods, Depreciation is applied in accounting, but written down value method is used more.
List of Depreciation With Fixed Assets
|s. no.||Types of Assset||Depreciation on Assets ( % )|
|5||tangible assets ( trade mark , licence, franchise||25|
|9||Wooden structure building||40|
|11||Plant & machinery||15|
|12||bike, car, scooter, motor car||30|
|15||Containers made of glass||40|
|18||router, bridge, FACT device||40|
The depreciation imposed on an asset shows how much of an asset has been used by a company. When a company buys assets, it spends part of its cost every year. And the assets keep giving BENEFIT to the company for a long time. Depreciation is the expenses incurred on the assets, then the actual value of an asset is shown in the balance sheet.