Data Structure
Networking
RDBMS
Operating System
Java
MS Excel
iOS
HTML
CSS
Android
Python
C Programming
C++
C#
MongoDB
MySQL
Javascript
PHP
Physics
Chemistry
Biology
Mathematics
English
Economics
Psychology
Social Studies
Fashion Studies
Legal Studies
- Selected Reading
- UPSC IAS Exams Notes
- Developer's Best Practices
- Questions and Answers
- Effective Resume Writing
- HR Interview Questions
- Computer Glossary
- Who is Who
Explain about Diminishing balance method in depreciation.
In diminishing balance method, depreciation is calculated on book value of the asset at the start of the year instead of principle amount with fixed percentage. In this, the percentage is same but depreciation amount gradually decreases as it is done on book value.
Formula
Depreciation amount = (book value * rate of depreciation)/100
Some of the merits of diminishing balance method are as follows −
- Recognised by income tax authorities.
- Minimises impact of obsolescence.
- Depreciation amount decreases year by year.
- Suitable for assets where scrap value equals to zero.
Some of the demerits of diminishing balance method are as follows −
- Asset value can be zero.
- Interest is not considered.
- Calculation of profit/loss is complicated.
- Emphasis on historical cost.
Journal entry
Year 1
| Date | Particulars | Debit | Credit | |
|---|---|---|---|---|
| XX-XX-XXXX | Machinery A/c | Dr. | $$$$$$ | |
| To Bank (Being land purchased on lease) | $$$$$$ | |||
| XX-XX-XXXX | Depreciation A/C | Dr. | $$$$ | |
| To machinery (being depreciation on asset charged) | $$$$ | |||
| XX-XX-XXXX | Profit or loss A/C | Dr | $$$$$$ | |
| To depreciation A/C (Being depreciation transfer to P&L A/c) | $$$$$$ |
On subsequent years
| XX-XX-XXXX | Depreciation A/C | Dr. | $$$$ | |
| To machinery (being depreciation on asset charged) | $$$$ | |||
| XX-XX-XXXX | Profit or loss A/C | Dr | $$$$$$ | |
| To depreciation A/C (Being depreciation transfer to P&L A/c) | $$$$$$ |
Updated on: 13-Aug-2020
3K+ Views
Advertisements