Depreciation By TS Grewal
The TS Grewal Class 11 Accountancy Chapter 11 - Depreciation solutions are presented here by experts so that students can understand the concepts well and get good marks in their exams. The solutions are provided in such a manner that students get familiar with the concepts used to solve the problems. The language is crisp and very interesting so that students get curious about learning.
This chapter starts with the meaning of Depreciation then we are introduced to similar terms like Depletion, Amortization, Obsolescence. The 3 principal features of Depreciation are also provided. The most important topics which are frequent in the exams are Factors affecting Depreciation, Methods of Calculation, Reserves, and their Importance.
FAQs on Class 11 Accountancy TS Grewal Solutions Chapter 11 - Depreciation
1. What is the significance of Depreciation?
Determining the Genuine Profit or Loss- A company's true profit can only be determined after all costs have been charged to the profit and loss account.
When depreciation is not applied, the asset is reported in the balance sheet at a value larger than its real value.
In this case, the balance sheet does not accurately reflect the company's financial status.
To avoid paying too much income tax, do not remove depreciation from the profit and loss statement; otherwise, the net profit will be more than the true profit. As a result, the firm will have to pay more income tax.
2. What does Depreciation mean?
Depreciation is the consecutive drop in the cost of a fixed asset due to wear and tear until the equipment becomes obsolete in accounting terms. It is the period of time that an asset may be considered productive. The fixed asset has outlived its useful life and is no longer considered cost-effective to operate. Depreciation is described as the loss of a fixed asset's value as a result of its use, obsolescence, or passage of time.
3. What does the Straight Line Method mean?
The depreciation Straight Line Method charges a fixed depreciation amount yearly for the life of an item. The annual depreciation is determined based on the Original Cost and remains consistent year after year. The yearly depreciation charge is included in the total cost and is consistent year after year. This approach is also referred to as the 'Real Cost Method' or the 'Fixed Input Method.' It's a technique of calculating periodic depreciation that includes subtracting the scrap value from the cost of a depreciable item and dividing the resultant amount by the asset's expected number of usable life periods — compare compound-interest approach.
4. What does Written Down Value mean?
Depreciation is charged on the book value (cost-reduction) of assets on a yearly basis under the Written Down Value method. The volume of the book continues to drop with the WDV technique, as does the yearly decline. This approach is also known as the 'Reducing Measurement Method' or the 'Reducing Input Method.' Under the Written Down Value method, depreciation is applied to the asset's book value (cost – depreciation) every year. Annual depreciation reduces when book value declines under the WDV method.
5. What are the causes of Depreciation?
Physical Wear and Tear - Any material will eventually degrade after extensive usage, as pieces wear out and must be replaced. When the property can no longer be fixed, it should be discarded. When fixed assets, such as a car or machinery, are used over an extended length of time, they inevitably wear down.
Expiration of User Rights - Someone may have the right to use a fixed asset (such as software or a database) for a period of time. If this is the case, its lifespan ends when the user rights expire, thus the reduction must be finished at the conclusion of the term of use. Land may begin to disintegrate by the end of time as a result of natural disasters or circumstances. Likewise, equipment particles may start to corrode.
Obsolescence - Some machinery will be replaced by more efficient models, reducing the need for original equipment.