its given in the trial balance the provision for depreciation as a credit balance ... and when the fresh depreciation is charged on it ... whether we should add to that or deduct from it ??
11 Replies
Prakash
(Chartered Accountant)
(560 Points)
Replied 23 September 2011
Understand the concept first
Generally when you charge depreciation on fixed assets, you will pass the entry like this
Depreciation A/c
to Fixed Assets A/c
And you will transfer the Depreciation so charged to Profit and Loss Account A/c
Profit and Loss A/c
To Depreciation A/c
By this Fixed Assets are reduced by the extent of Depreciaion Provided. In future if you want to know the original amount of a Particular Asset, it is difficult to derive as they were restated every year 'cause of depreciation
So, inorder to Carry the Assets at original Value some organisations will account for depreciation like this
Depreciation A/c
To Provision for Depreciation A/c (Insted of Fixed Assets)
This Provision for Depreciation being a Credit Item will be shown in Balance sheet on liability Side or it can be shown as a dedution from Fixed Assets. This Provision for Depreciation will be accumulated with every year depreciation
Now your Question
It is given in trail balance Provision for Depreciation as Credit Balance - Obviosly it is credit only
When a fresh Depreciation is charged-- That will be added to Existing Balace
As the Entry for Fresh Depreciation
Depreciation A/c
To Provision for Depreciation A/c ( Again Credited)
valji
(Accounts manager-MBA)
(2150 Points)
Replied 23 September 2011
agreee with above add additional balance
Akhil Sharma
(Service)
(141 Points)
Replied 23 September 2011
Very nicely explained by Mr. Prakash. Agreed.
Mahender babu
(article clerck)
(44 Points)
Replied 23 September 2011
Very Good explination Boss..............
Alan Angels Augustine
(STUDENT PCC)
(62 Points)
Replied 23 September 2011
Provision for depreciation is credit balance account.
In order to carry the asset in its original value, a depreciation fund / provision for depreciation account will be created, which will show credit balance. So the entry will read as
Depreciation a/c Dr
To Depreciation Fund a/c
Each year depreciation will be further added to the same and depreciation fund account will show accumulated balance of depreciation charged till the date of B/s.
For the year depreciation will be charged to P&L account by passing the following entry,
Profit & Loss a/c Dr
To Depreciation (for the year)
Now, on sale of the particular asset the depreciation fund created has to be reversed. Assuming profit on sale of asset then the entry would read as,
Bank a/c dr
Depreciation fund a/c dr
To Asset a/c
To Profit on sale of asset a/c
Hope u understood...
Pulkesh Mehta
(Chartered Accountant)
(243 Points)
Replied 23 September 2011
Totally in assent with Prakash
mridul savio Pinto
(articled trainee )
(1477 Points)
Replied 25 September 2011
i would thank from the bottom of my heart to all my friends ... for explaining this concept
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