Depreciation

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

08 November 2012 Dear Sir,
Suppose there is an asset of Rs. 10 lacs and depreciation charged thereon is Rs. 1 lac @10%. Now the proprietor has sum of Rs. 1 lac in the form of depreciation besides his net profit. As the net profit would be added with the opening balance of capital and the assets side of balance sheet would be reduced upto Rs. 1 lac due to depreciation. Now I should add this depreciation amount in cash in hand in assets side or I should make a seperate entry of Reserves for Rs. 1 lac in assets side.

Please advise me.

CA. Sunil Kumar

CA. Sunil Kumar (Expert)
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08 November 2012 As per Double Entry System Every Transaction have dual Impact.

Depreciation of Rs. 1 Lac Reduce the Value of Assets .
Decrease in Profit by same 1 Lac

Profit ultimately added to ur capital i.e. Liability Side.

From above it is clear that Liability side reduce by 1 lac and Asset side reduce by 1 lac so

no question of other thing left.

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Querist : Anonymous

Querist : Anonymous (Querist)

08 November 2012 Suppose opening balance of capital is 10 lacs and Profit before depreciation is 2.5 lacs. Now the the liability side total would be come to 10 lacs + 1.5 of net profit after depreciation will make Rs. 11.50 lacs, however on the assets side total would come to 10 lacs of assets opening value - 10% depreciation will make Rs. 9 lacs. Now the assets side is coming shorten than liability side by 1 lac.
Please clarify.

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