Depreciation Accounting [Before 30-3-2016]

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.... resources;                 (iii) expenditure on research and development;                 (iv) goodwill and other intangible assets;                 (v) livestock. This standard also does not apply to land unless it has a limited useful life for the enterprise. 2. Different accounting policies for depreciation are adopted by different enterprises. Disclosure of accounting policies for depreciation followed by an enterprise is necessary to appreciate the view presented in the financial statements of the enterprise. Definitions 3. The following terms are used in this Standard with the meanings specified: 3.1 Depreciation is a measure of the wearing out, consumption or other loss of value of a depreciable asset arising from use, effluxion of time or obsolescence through technology and market changes. Depreciation is allocated so as to charge a fair proportion of the depreciable amount in each accounting period during the expected useful li....

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....istorical cost of a depreciable asset may undergo subsequent changes arising as a result of increase or decrease in long term liability on account of exchange fluctuations, price adjustments, changes in duties or similar factors. 7. The useful life of a depreciable asset is shorter than its physical life and is:                 (i)  pre-determined by legal or contractual limits, such as the expiry dates of related leases;                 (ii) directly governed by extraction or consumption;                 (iii) dependent on the extent of use and physical deterioration on account of wear and tear which again depends on operational factors, such as, the number of shifts for which the asset is to be used, repair and maintenance policy of the enterprise etc.; and                 (iv) reduced by obsolescence arising from such factors as:      &n....

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.... amount of the asset is charged to revenue over the revised remaining useful life. 12. There are several methods of allocating depreciation over the useful life of the assets. Those most commonly employed in industrial and commercial enterprises are the straightline method and the reducing balance method. The management of a business selects the most appropriate method(s) based on various important factors e.g., (i) type of asset, (ii) the nature of the use of such asset, and (iii) circumstances prevailing in the business. A combination of more than one method is sometimes used. In respect of depreciable assets which do not have material value, depreciation is often allocated fully in the accounting period in which they are acquired. 13. The statute governing an enterprise may provide the basis for computation of the depreciation. For example, the Companies Act, 1956 lays down the rates of depreciation in respect of various assets. Where the management's estimate of the useful life of an asset of the enterprise is shorter than that envisaged under the provisions of the relevant statute, the depreciation provision is appropriately computed by applying a higher rate. If the man....

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....ovision for depreciation is based on the revalued amount on the estimate of the remaining useful life of such assets. In case the revaluation has a material effect on the amount of depreciation, the same is disclosed separately in the year in which revaluation is carried out. 19. A change in the method of depreciation is treated as a change in an accounting policy and is disclosed accordingly.^2 Main Principles 20. The depreciable amount of a depreciable asset should be allocated on a systematic basis to each accounting period during the useful life of the asset. 21. The depreciation method selected should be applied consistently from period to period. A change from one method of providing depreciation to another should be made only if the adoption of the new method is required by statute or for compliance with an accounting standard or if it is considered that the change would result in a more appropriate preparation or presentation of the financial statements of the enterprise. When such a change in the method of depreciation is made, depreciation should be recalculated in accordance with the new method from the date of the asset coming into use. The deficiency or sur....