Depreciation, Provisions and Reserves | Class 11 Accountancy Notes

Accounting Treatment of Depreciation

Depreciation is recorded in the books of accounts through journal entries that debit the Depreciation Account and credit either the Asset Account or the Provision for Depreciation Account. When depreciation is credited directly to the asset account, the asset's book value is reduced. Alternatively, when a provision for depreciation account is maintained, depreciation is credited to this account, which is a contra asset account, and the asset's original cost remains unchanged. At the end of the accounting period, the depreciation expense is charged to the Profit and Loss Account by debiting it and crediting the Depreciation Account. This treatment ensures that the depreciation expense is matched against the revenue of the period, and the asset's value is appropriately reflected in the balance sheet. The chapter includes detailed journal entries and ledger accounts illustrating this treatment.

📊 Diagram: Illustrations 2 and 3 on pages 17 and 20 showing journal entries and ledger accounts for depreciation.

🧪 Activity: Illustrations 2 and 3 demonstrate accounting treatment with journal entries and ledger postings.

🔗 Connection: Prepares for understanding asset disposal and its accounting.

Table on page 17 (14×13)

| | Date | Particulars | | | | L.F. | | Debit Amount | | Credit Amount | | |

| | 2016 | | | | | | | | | 5,00,000 50,000 54,000 54,000 | | | | Apr. 01 Plant A/c Dr. 5,00,000 To Bank A/c 5,00,000 (Purchased plant for 5,00,000) Apr. 01 Plant A/c Dr. 50,000 To Bank A/c 50,000 (Expenses incurred on installation) 2017 Mar. 31 Depreciation A/c Dr. 54,000 To Plant A/c 54,000 (Depreciation charged on asset) Mar. 31 Profit and Loss A/c Dr. 54,000 To Depreciation A/c 54,000 (Depreciation debited to profit and loss account) Plant Account Dr. C Date Particulars J.F. Amount Date Particulars J.F. Amount 2016 2017 Apr. 01 Bank 5,00,000 Mar. 31 Depreciation 54,000 Balance c/d 4,96,000 Bank 50,000 (Installation expenses) 5,50,000 5,50,000 2017 2018 Apr. 01 Balance b/d 4,96,000 Mar. 31 Depreciation 54,000 Balance c/d 4,42,000 4,96,000 4,96,000 2018 2019 Apr. 01 Balance b/d 4,42,000 Mar. 31 Depreciation 54,000 Balance c/d 3,88,000 | Apr. 01 Apr. 01 2017 Mar. 31 Mar. 31 | Plant A/c Dr. To Bank A/c (Purchased plant for 5,00,000) | | | | | | 5,00,000 50,000 54,000 54,000 | | 5,00,000 50,000 54,000 54,000 | | | | | | Plant A/c Dr. To Bank A/c (Expenses incurred on installation) | | | | | | | | | | | | | | Depreciation A/c Dr. To Plant A/c (Depreciation charged on asset) | | | | | | | | | | | | | | Profit and Loss A/c Dr. To Depreciation A/c (Depreciation debited to profit and loss account) | | | | | | | | | | |

| | Date | Particulars | J.F. | Amount | Date | | Particulars | | J.F. | | Amount | | | | 2016 Apr. 01 2017 Apr. 01 2018 Apr. 01 | Bank Bank (Installation expenses) Balance b/d Balance b/d | | 5,00,000 50,000 | 2017 Mar. 31 2018 Mar. 31 2019 Mar. 31 | | Depreciation Balance c/d Depreciation Balance c/d Depreciation Balance c/d | | | | 54,000 4,96,000 | |

| | | | | 4,96,000 | | | | | | | 54,000 4,42,000 | |

| | | | | 4,42,000 | | | | | | | 54,000 3,88,000 | | | | 2019 Apr. 01 | Balance b/d | | 4,42,000 | | | | | | | 4,42,000 | |

Table on page 20 (13×11)

| | Date | Particulars | J.F. | Amount | Date | | Particulars | J.F. | Amount | |

| | 2017 Mar. 31 | Machine | | 10,000 | 2017 Mar. 31 | | Profit & Loss | | 10,000 | |

| 2018 2018 Mar. 31 Machine 20,000 Mar. 31 Profit & Loss 20,000 20,000 20,000 2019 2019 Dec. 31 Machine 20,000 Dec. 31 Profit & Loss 20,000 20,000 20,000 Working Notes (1) Calculation of original cost of the machine Purchase cost 1,80,000 Add Installation cost 20,000 Original cost 2,00,000 (2) Depreciation expense = 10% of 2,00,000 every year = 20,000 p.a. (3) During the year 2016, depreciation shall be charged only for 6 months, a acquisition date is October 01, 2016, i.e., the asset is used only for 6 month during the year 2016-17. 6 (4) Depreciation (2016-17) = 20,000 x =10,000 12 Illustration 3 Based on data given in question number 2 record journal entries and prepare Machin account, Depreciation account and Provision for Depreciation account for the first 3 year if provision for depreciation account is maintained by the firm. Solution Books of Mehra and Sons Machine Account Dr. C Date Particulars J.F. Amount Date Particulars J.F. Amounts ` 2016 2017 Oct. 1 Bank 1,80,000 Mar. 31 Balance c/d 2,00,000 | 2018 Mar. 31 2019 Dec. 31 | Machine Machine | | 20,000 | 2018 Mar. 31 2019 Dec. 31 | | Profit & Loss Profit & Loss | | 20,000 | |

| | | | | | | | | | | s s e s r. | | | Date | Particulars | J.F. | Amount | Date | Particulars | | J.F. | Amounts | | | | 2016 Oct. 1 | Bank | | 1,80,000 | 2017 Mar. 31 | Balance c/d | | | 2,00,000 | | | | Oct. 1 | Bank (Installation expenses) | | 20,000 | | | | | | |