06 July 2024
The terms related to depreciation and their meanings are as follows:
**Addition**: This refers to the cost of new assets acquired during a particular accounting period that are added to the existing pool of assets. For depreciation purposes, additions are capitalized and their costs are spread over their useful lives.
**Deletion/Disposal**: When an asset is disposed of or sold, it is removed from the company's books. The disposal can be due to various reasons such as obsolescence, damage, or sale. Once disposed, the asset's cost and accumulated depreciation are removed from the accounting records.
**Accumulated Depreciation**: This represents the total depreciation expense charged against an asset since its acquisition. Accumulated depreciation is a contra-asset account, meaning it reduces the book value of the asset on the balance sheet.
**Salvage Value**: Also known as residual value, salvage value is the estimated value of an asset at the end of its useful life. It represents the amount that the company expects to receive from selling or disposing of the asset at the end of its useful life.
**Gross Block**: This refers to the total cost of all assets held by the company before accounting for depreciation or amortization. It includes the original cost of assets plus any additions made, and it excludes disposals or deductions.
**Net Block**: Net block is the value of an asset after accounting for accumulated depreciation or amortization and any impairments. It represents the net book value or carrying amount of the asset on the balance sheet.
In summary, these terms are essential in accounting for assets and calculating depreciation over their useful lives. They help in determining the value of assets on the balance sheet and understanding the financial impact of asset additions, disposals, and depreciation expenses over time.
06 July 2024
The terms related to depreciation and their meanings are as follows:
**Addition**: This refers to the cost of new assets acquired during a particular accounting period that are added to the existing pool of assets. For depreciation purposes, additions are capitalized and their costs are spread over their useful lives.
**Deletion/Disposal**: When an asset is disposed of or sold, it is removed from the company's books. The disposal can be due to various reasons such as obsolescence, damage, or sale. Once disposed, the asset's cost and accumulated depreciation are removed from the accounting records.
**Accumulated Depreciation**: This represents the total depreciation expense charged against an asset since its acquisition. Accumulated depreciation is a contra-asset account, meaning it reduces the book value of the asset on the balance sheet.
**Salvage Value**: Also known as residual value, salvage value is the estimated value of an asset at the end of its useful life. It represents the amount that the company expects to receive from selling or disposing of the asset at the end of its useful life.
**Gross Block**: This refers to the total cost of all assets held by the company before accounting for depreciation or amortization. It includes the original cost of assets plus any additions made, and it excludes disposals or deductions.
**Net Block**: Net block is the value of an asset after accounting for accumulated depreciation or amortization and any impairments. It represents the net book value or carrying amount of the asset on the balance sheet.
In summary, these terms are essential in accounting for assets and calculating depreciation over their useful lives. They help in determining the value of assets on the balance sheet and understanding the financial impact of asset additions, disposals, and depreciation expenses over time.
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