Set 2 Kerala Financial Corporation Assistant Quick Revision Questions

on Saturday, October 19, 2019 in Accountacy, divisional accountant, Financial corporation Assistant, kerala Financial corporation Assistant

Set 2Kerala Financial Corporation Assistant Quick Revision Questions

Depreciation

• Depreciation is “a measure of the wearing out, consumption or other loss of value of depreciable asset arising from use, effluxion of time or obsolescence through technology and market change.

Depreciation is allocated so as to charge a fair proportion of depreciable amount in each accounting period during the expected useful life of the asset.

Depreciation includes amortization of assets whose useful life is pre-determined”.

• Depreciation has a significant effect in determining and presenting the financial position and results of operations of an enterprise.

Depreciation is charged in each accounting period by reference to the extent of the depreciable amount.

• The subject matter of depreciation, or its base, are ‘depreciable’ assets “are expected to be used during more than one accounting period. have a limited useful life;

and are held by an enterprise for use in production or supply of goods and services, for rental to others, or for administrative purposes and not for the purpose of sale in the ordinary course of business.”

• The amount of depreciation basically depends upon three factors, i.e. Cost, Useful life and Net realizable value.

• The cost of a fixed asset is “the total cost spent in connection with its acquisition, installation and commissioning as well as for add item or improvement of the depreciable asset”.

• The useful life of an asset is the “period over which it is expected to be used by the enterprise”.

• There are two main methods of calculating the depreciation amount.

straight-line method

written down value method

• Selection of appropriate method depends upon the following factors:

• type of the asset

• nature of the use of such asset

• circumstances prevailing in the business.

• The selected depreciation method should be applied consistently from period to period. Change in the depreciation method may be allowed only under specific circumstances.