Depreciarion as per slm method

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Querist : Anonymous

Querist : Anonymous (Querist)

07 January 2016 Dear sir
can anyone let me know the calculation of depreciation as per SLM method with an example..

plz reply.

Ankur Singhal

Ankur Singhal (Expert)
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07 January 2016 Dear
Straight line depreciation can be calculated using any of the following formulas:

● Depreciation per annum = ( Cost − Residual Value )
Useful Life

● Depreciation per annum = ( Cost − Residual Value ) x Rate of depreciation

Example
On 1 Jan 2011, Company A purchased a vehicle costing $20,000. The company expects the vehicle to be operational for 4 years at the end of which it can be sold for $5,000. Calculate depreciation expense for the year ended 31 Dec 2011, 2012, 2013 and 2014.

Solution:
Depreciable amount of the vehicle is $15,000 ($20,000 cost minus $5,000 salvage value). Useful life is 4 years.

Depreciation expense for year ended 31 Dec 2011 = $15,000 ÷ 4 = $3,750 per year.

Depreciation expense shall remain the same over the useful life. Hence, an amount of $3,750 shall be the depreciation expense for year ended 31 Dec 2012, 2013 and 2014.

Querist : Anonymous

Querist : Anonymous (Querist)

07 January 2016 sir thanks for your quick reply sir also let me know the accounting entry for the same.

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Ankur Singhal

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07 January 2016 Dear
1. Depreciation A/c Dr.
To Fixed Asset A/c

2. P&L A/c Dr
to Depreciation A/c

Querist : Anonymous

Querist : Anonymous (Querist)

07 January 2016 sir i think these accounting entry is to be made as per wdv method, let me know entry as per slm

Ankur Singhal

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07 January 2016 Dear
Accounting entry is same only the amount of depreciation changes.

Querist : Anonymous

Querist : Anonymous (Querist)

07 January 2016 sir in your above reply if depreciarion in under head of indirect exp. then secound not to be pass i.e. p/l a/c dr... to dep. is this correct..

Ankur Singhal

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07 January 2016 Dear
Deprecation is always an indirect expense.
Let me make you clear one thing this is the only entry that you can do.
Do not make fuss of it.

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Querist : Anonymous

Querist : Anonymous (Querist)

07 January 2016 ok.. sir what is residual value in respect of depreciation

Ankur Singhal

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07 January 2016 Dear
Residual value in case of slm means the salvage value / expected sale value on expiry of life of asset.(may be the scrap value in some case)

Querist : Anonymous

Querist : Anonymous (Querist)

07 January 2016 sir as per your first reply in four year the vehicle value become only 5000 which is residual vaule, assume if company has not sold this vehicle then in fifth year how the dep. will be charged.. plz clarify...

Ankur Singhal

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07 January 2016 Dear
Pls tell me what the figures are there in your case. and also
the residual value is expected at starting of year1 and if asset not sold then the residual value will also be added in depreciation amount at 4th year and if you stlll using asset then show the asset at Re. 1 in the books.
As in SLM depreciation is not charged beyond the expected life of the asset

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Querist : Anonymous

Querist : Anonymous (Querist)

07 January 2016 sir as per me after charging dep. till three year my asset value is left 8750/- in which 5000 is residual value and 3750 is dep. amount of fouth year, however the asset is still in use then while charging dep. in forth year the dep. will be charged by 8749 including residual value 3750 4999, hence asset value will remain Rs. 1 forever.. plz clarify is this correct or not..

Ankur Singhal

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07 January 2016 yes dear you are correct
Also you can take depreciation of Rs.3750/- and carry asset at 5000/- in books of account with no depreciation after that.

Querist : Anonymous

Querist : Anonymous (Querist)

07 January 2016 sir various assets percentage are also defined as per SLM method like income tax in company act. will this % rate not be opt to calculate the dep...

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Ankur Singhal

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07 January 2016 Dear
In case of a company you need to follow the % given in company act
Income tax do not prescribe the rate for the SLM method it only talks of WDV method.

Querist : Anonymous

Querist : Anonymous (Querist)

07 January 2016 sir assume if as per slm 4.5% dep. is given in company act. then how the dep. will be calculate as per your example which you have given in first reply...

Querist : Anonymous

Querist : Anonymous (Querist)

07 January 2016 sir plzzz reply .. ...

Ankur Singhal

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07 January 2016 Dear
Depreciation = Original Cost * Rate
Depreciation will be same for every year.
In case where the rate is specified the salvage value is not considered. SV is considered only when then rate is not specified.

Querist : Anonymous

Querist : Anonymous (Querist)

07 January 2016 sir if rate of dep. is specified then sv value will be considered or not..

Querist : Anonymous

Querist : Anonymous (Querist)

07 January 2016 sorry not sv value, i mean useful life will be consider or not if rate is specified

Ankur Singhal

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07 January 2016 Dear
Read the above reply carefully.

Querist : Anonymous

Querist : Anonymous (Querist)

07 January 2016 sir.. if rate is specified then as per me the calculation is, assume i have purchase a vehicle of Rs. 20000 on 13/4/2014 and dep. rate is 4.5% specified as per slm, the dep. will be charged 20000*4/100, 900 every year till the asset value become Rs. 1, plz tell me is this correct or not...

Ankur Singhal

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07 January 2016 Dear
Yes you are correct.

Querist : Anonymous

Querist : Anonymous (Querist)

07 January 2016 sir, dep. a/c dr... to concern assets... is this correct entry of dep.

Ankur Singhal

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07 January 2016 Dear
It is the correct entry.