4 Replies
Vinay somani (CA, CS)
(Assistant Manager-Accounts)
(549 Points)
Replied 13 May 2016
Provision of depreciation is created to simplify the accounting and calculation of profit /loss on sale of assets.
Provision of depreciation is the collected value of all depreciation .With making of this account we are not credited depreciation in asset account. But transfer every year depreciation to provision of depreciation account. Every year we adopt this procedure and when assets are sold we will transfer sold assets ‘total depreciation to credit side of asset account. For calculating correct profit or loss on fixed asset.
There are following feature of provision for depreciation account
- Fixed asset is made on its original cost and every year depreciation is not transfer to fixed asset account.
- Provision of depreciation account is Conglomerated value of all old depreciation.
- Entry of depreciation will change also & Calculation of loss on sale is very important where is provision of depreciation account is kept.
Mohd Arif
(Finance Professional)
(39 Points)
Replied 13 May 2016
Thanks.
Vinay somani (CA, CS)
(Assistant Manager-Accounts)
(549 Points)
Replied 17 May 2016
The following journal entries are recorded under this method:
1. For recording purchase of asset (only in the year of purchase):
Asset A/c Dr. (with the cost of asset including installation, expenses etc.)
To Bank/Vendor A/c (cash/credit purchase)
2. Following two journal entries are recorded at the end of each year:
(a) For crediting depreciation amount to provision for depreciation account:
Depreciation A/c Dr. (with the amount of depreciation)
To Provision for depreciation A/c
(b) For charging depreciation to profit and loss account:
Profit & Loss A/c Dr. (with the amount of depreciation)
To Depreciation A/c
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