"DEPRECIATIONI prepare Depreciation Concept in a smart way with Examples Please Go Through Entair Document I Hope Definitely You Understand Depreciation Concept is very Easy to Understand and to Answer very Easy With Below Assignment ….ASSIGMENT :-st On 1 jan-2003 a firm Purchased plant and Machinary costing 22,000$.It is estimated that itsworking life is 5 years and at the end ofwhich it will fetch3,000 $..Show Plant and MachinaryAccount For 4 years, if depreciation is Charged according to Straight Line Method..?SOLUTION:- 1.1.2007 Plant and Machinary Value:-6800$Depreciation:-Depeciationis the Gradual and Permanent decrease in the value of an Asset From any CauseDepreciation Concept:-Assets are acquired for running a Business..These assets are divided into wo types.1. Fixed Assets2. Current Assets1.Fixed Assets:-The Fixed Assets are those which are Fixed in nature and are acquired forprolonged use eg:- Plant and Machinery, Buildings, Furniture Etc…2.Current Assets:--The Current Assets are those which are required for short term purposes inThe business..Ex:--Stock, Debtors, Cash Etc..The Regular and constant use of the fixed Assets may lead to a fall in the value of qualityAnd quantity of an asset..The term depreciation Represents loss or decrease in the value of anasset due to wear and tear(constant use) obsooloscence(pemanet change in the asset may beresult in the uselessness of the asset)permananent fall in the Market…Factors Influencing Depreciaton1. Wear and Tear Due to Constant use2. Decrease in the Market value of the Asset3. Due to obsolescence i.e.. Permanent Change in the asset may be result in the uselessnessof the asset.4. Non Functioning of a Machine May Cause Depreciation5. Accident and Damage of and asset will cause Depreciation.6. Scrap value of an asset at the end of its useful life.. Journal Entries:Note:-Students you prepare your own journal entries with Iprepare Depreciation JournalEntries Format1. When The Asset Purchased through Cheque EntryAsset Account A/cDrxxxxTo Bank A/cxxx(Being The Asset Purchased Through Cheque)2. Whenthe Depreciation Chargedisprovided on the AssetEntryDepreciation A/cDrxxx To Asset A/cxxx(Being the depreciation Calculated)3.when the Depreciation istransferred to p&l A/c EntryProfit& Loss A/c Dr.xxx To Depreciation Accountxxx(Being The Depreciation transferred to P&l a/c)4.When the Asset is Sold after its working lifeEntryBankA/cDr xxxTo Asset Account xxx5.Profit Earned on sale of Asset transferred to p& l A/cEntryAsset A/c Dr.xxxTo Profit and Loss Account xxx(Being the Profit transferred to P&L A/c) 6.Whenloss occurred on the sale of an Asset Entry:Profit and Loss A/c DrxxxTo Asset Account xxx ( Being the Loss on Sale transferred to P&L A/c)Real World Business Scenario ExampleGenerally we can take Manufacturing Industry..Manufacturing Industries to producest Products purpose firmon 1 January 2000 to Purchase plant andMachinaryMachinary Worth(cost)-52,000$..For 5Years purpose…After 3 yearsMachinary Value Automatically DecreaseIf we want to Sale Plant and MachinaryAfter 3 years we Calculate depreciation with Scrap Value 2,000. to Sale Plant andMachinary…so I prepare plant and Machinery Account For 3 years…Explanation:-Straigh Line Method Formulae :-Cost of the Asset – Scrap value------------------------------------------------Estimated Life of The Asset Annual Depreciation =52,000$ -2,000$ ------------------------------=10,000$ 5Plant and Machinary AccountDr CrDateParticularsUSD$ Date ParticularsUSD$1.1.2000 To Bank52,000$ 31.12.2000 By Depreciation10,000$“Byblance C/d 42,000$ ----------- ------------52,000$ 52,000$ ----------------------------1.1.2001To Balance B/d42,000$31.12.2001By Depreciation10,000$ “ By Balance C/d32,000$ ------------------------42,000 42,000------------ -----------1.1.2002To Balance B/d 32,000$ 31.12.2002 By Depreciation10,000$“By Balance C/d 22,000$ ------------------------ 32,000$ 32,000$------------ ------------1.1.2003To Balance C/d 22,000$After 3 years Plant & Machinary Value with Depreciation Charge = 22,000$-------------*****----------- "