This note is designed by the ‘Basics in Maths’ team. These notes to do help the TS intermediate second-year Accountancy students.
These notes cover all the topics covered in the TS I.P.E second year Accountancy syllabus and concept to help you solve all the types of Inter Accountancy problems asked in the I.P.E and entrance examinations.
DEPRECIATION: It is permanent, continuous and gradual shrinking in the book value of a fixed asset.
DEPLETION: It refers to the physical deterioration by the exhaustion of natural resources. (e.g. ore deposits in mines, oil wells, quarries, etc.,)
FIXED INSTAL MENT METHOD: A method under which the depreciation provided annually on the fixed asset remains the same throughout the life span of the asset.
NONCASH EXPENSE: Expenses which may be operational in nature but that do not affect the payment of cash (e.g. depreciation).
OBSOLESCENCE: diminution in the value of fixed assets due to new inventions, new improvement, change in fashions, change in customer’s tastes and preferences.
RESIDUAL VALUE (scrap value): The realisable value of fixed assets after the expiry of its estimated economic life.
SINKING FUND: A fund created for the repayment of along-term liability or the replacement of an asset at a set date in the future.
DEPRECIATIONFUND: A fund created for the replacement of an asset at a set date in the future.
WRITTEN DOWN VALUE: The value of a fixed asset after depreciation.
WRITTEN DOWN VALUE METHOD: A method under which depreciation is calculated at a fixed percentage on the original cost of the asset in the first year and on written down value in the subsequent year.
DOUBLE ENTRY SYSTEM: The accounting system of recording both the receiving (debit) and giving (credit) aspects of a business transaction is called a double-entry system.
SINGLE ENTRY SYSTEM: It is a mixture of a double-entry, single entry and no entry. It is an incomplete double-entry system.
STATEMENT AFFAIRS: To find out capital, a statement showing various assets and liabilities of a business concern is prepared on a particular date, which is called a statement of affairs. It is similar to a balance sheet.
CAPITAL COMPARISON METHOD: Under this method, the profit/ loss for a particular period is ascertained by comparing the closing capital of the opening capital.
Meaning of depreciation
Depreciation means a fall in the value or quality of an asset. The word depreciation is derived from the Latin word “depretium”. ‘De’ means decline and ‘pretium’ means price. it is the decline in the price or value of the fixed assets. Depreciation is described as a permanent, continuing and gradual shrinkage in the value of fixed assets. It is based on the cost of the asset consumed in a business and not on its market value.
The depreciation is that part of the original cost of a fixed asset that is consumed during its period of use by the business. Thus, the depreciation is the loss of value of a fixed asset arising from use, effluxion of time or obsolescence. Depreciation sometimes restricted to fixed tangible assets but in the UK, it also usually includes the amortization of intangible assets. However, the tangible fixed assets lose their value over a period of time as they are used in the business operation and they do not last forever. If any amount is received on the sale of the fixed asset is deducted from the cost of it. Then the remaining value of the fixed asset is said to have” depreciated value” by that amount over its period of usefulness to the business.