- Trending Categories
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 insurance policy method of depreciation
Insurance policy method is just like sinking fund method of depreciation, but in this method, the money is used to pay premium for insurance company. Premium will be charged at the start of the year. Money at the end of maturity can be used to buy a new asset.
Journal entries
| Date | Particulars | Dr | Cr |
|---|---|---|---|
| XX/XX/XXXX | Insurance policy A/c To cash A/c To sinking fund A/c (Being premium paid at the end of the year) | XXX | XXX |
| XX/XX/XXXX | Profit and Loss A/c To Depreciation A/c (Being Depreciation is charged) | XXX | XXX |
| XX/XX/XXXX | Cash A/c To insurance policy A/c (Being money received on maturity) | XXX | XXX |
| XX/XX/XXXX | Insurance policy A/c To Depreciation fund A/c (Being Transfer of excess amount over premium) | XXX | XXX |
| XX/XX/XXXX | Depreciation policy A/c To Asset A/c (Being asset is retired) | XXX | XXX |
| XX/XX/XXXX | cash A/c To Asset A/c (Being scrap is sold) | XXX | XXX |
Advantages of insurance policy method are −
- Insurance for fixed asset.
- Risk loss is covered.
- Funds for replacement of asset is available.
- Better security.
Disadvantages of insurance policy method are −
- More expensive.
- Not suitable for assets where additions are needed.
- Difference between interest received and premium paid is more.
- Related Articles
- Explain revaluation method of depreciation.
- Explain about Mileage method of depreciation.
- Explain about Units of production method in depreciation.
- Explain about Diminishing balance method in depreciation.
- Explain the concept of machine hour rate depreciation method.
- Sinking Fund Method of Depreciation
- Differentiate between sinking fund depreciation and annuity method of depreciation.
- Explain sinking fund depreciation.
- Diminishing Value Method of Calculating Depreciation
- Straight Line Method of Calculating Depreciation
- Explain the concept of depreciation in accounting.
- Written Down Value (WDV) Method of Depreciation
- Calculate depreciation using diminishing balance method
- Calculate depreciation using productin units method
- Explain about straight line depreciation in accounting.
Advertisements