Depreciation A/c Dr 18,000
To Accumulated Depreciation A/c 18,000
Conceptual Basis: Ind AS 16 / IAS 16 require systematic allocation of depreciable amount over useful life. SLM spreads expense evenly.
Numerical Example: Cost ₹1,00,000; Residual Value ₹10,000; Useful Life 5 years → Depreciable = ₹90,000 → Annual = ₹18,000.
Logic: Depreciation is expense → debit; accumulated depreciation reduces asset → credit.
Impact: P&L expense ₹18,000; Balance Sheet asset net value reduces; no cash outflow.
Common Mistake: Depreciating land (not allowed).
Depreciation A/c Dr 20,000
To Accumulated Depreciation A/c 20,000
Conceptual Basis: WDV charges higher depreciation in early years; accepted under Ind AS / IFRS.
Numerical Example: Cost ₹1,00,000; Rate 20%. Year 1: ₹20,000; Year 2: ₹16,000 (on ₹80,000).
Logic: Matches asset usage pattern with economic benefits.
Impact: Higher initial expense reduces profits; gradually lower depreciation.
Common Mistake: Applying tax rates directly without separate accounting estimate.
Depreciation A/c Dr 30,000
To Accumulated Depreciation A/c 30,000
Conceptual Basis: Ind AS 16 / IAS 16 permit revaluation model. Depreciation recalculated on revalued amount.
Numerical Example: Original ₹1,00,000, revalued at ₹1,50,000; remaining life 5 years → Annual = ₹30,000.
Logic: Higher carrying value → higher depreciation expense.
Impact: Expense rises; reduces revaluation reserve gradually.
Common Mistake: Not transferring excess depreciation from revaluation surplus to retained earnings.
Impairment Loss A/c Dr 10,000
To Asset A/c 10,000
Depreciation A/c Dr 18,000
To Accumulated Depreciation A/c 18,000
Conceptual Basis: Ind AS 36 / IAS 36 require impairment review. If recoverable amount < carrying, write down.
Numerical Example: Asset carrying ₹90,000; recoverable ₹80,000 → Impairment ₹10,000. New depreciation based on ₹80,000.
Logic: Impairment reduces asset directly; depreciation continues on reduced base.
Impact: P&L shows impairment + depreciation; Balance Sheet asset value reduced.
Common Mistake: Ignoring impairment testing annually for intangible assets with indefinite life.
Depreciation A/c Dr 25,000
To Accumulated Depreciation A/c 25,000
Conceptual Basis: Ind AS 16 / IAS 16 require major components with different useful lives to be depreciated separately.
Numerical Example: Aircraft cost ₹5,00,000 → Engine (life 10 years) ₹3,00,000; Body (20 years) ₹2,00,000.
Logic: Separate useful lives → separate depreciation schedules.
Impact: Better matching of cost with usage; accurate asset valuation.
Common Mistake: Treating composite asset as single block.
Depreciation A/c Dr 22,500
To Accumulated Depreciation A/c 22,500
Conceptual Basis: Ind AS 8 / IAS 8 require prospective adjustment when estimates change.
Numerical Example: Asset carrying ₹90,000 with 4 years left → revised useful life 3 years → New Dep = ₹30,000 p.a.
Logic: Recompute on remaining carrying value over revised life.
Impact: P&L expense adjusted prospectively.
Common Mistake: Retrospectively adjusting past depreciation.
Depreciation A/c Dr 10,000
To Accumulated Depreciation A/c 10,000
Bank A/c Dr 50,000
Accumulated Dep. A/c Dr 40,000
To Asset A/c 80,000
To Profit on Sale A/c 10,000
Conceptual Basis: On disposal, update depreciation till date; remove asset from books.
Numerical Example: Asset cost ₹80,000, accumulated depreciation ₹40,000; sold ₹50,000 → Profit ₹10,000.
Logic: Record final depreciation, derecognize asset, book profit/loss.
Impact: Asset removed from Balance Sheet; gain/loss in P&L.
Common Mistake: Skipping depreciation for partial year before sale.
Amortization A/c Dr 15,000
To Accumulated Amortization A/c 15,000
Conceptual Basis: Ind AS 38 / IAS 38 require amortization of finite-life intangibles.
Numerical Example: Software cost ₹75,000; life 5 years → Annual = ₹15,000.
Logic: Similar to depreciation, systematic allocation over useful life.
Impact: P&L expense; Balance Sheet value reduces.
Common Mistake: Amortizing indefinite life intangibles like goodwill.
Depreciation A/c Dr 1,00,000
To Accumulated Depreciation A/c 1,00,000
Conceptual Basis: Ind AS 116 / IFRS 16 require lessee to recognize ROU asset & depreciate over lease term or useful life.
Numerical Example: Lease asset value ₹5,00,000; lease term 5 years → Annual depreciation = ₹1,00,000.
Logic: Recognizes consumption of lease rights as expense.
Impact: P&L shows depreciation + interest; Balance Sheet shows ROU net value & lease liability.
Common Mistake: Treating lease rentals directly as expense (old AS).
Depreciation A/c (Books) Dr 15,000
Deferred Tax Asset A/c Dr 5,000
To Accumulated Depreciation A/c 15,000
To Deferred Tax Liability A/c 5,000
Conceptual Basis: Tax laws may allow accelerated depreciation. Ind AS 12 / IAS 12 require deferred tax recognition.
Numerical Example: Accounting depreciation ₹15,000; Tax depreciation ₹20,000; Difference = ₹5,000 → Deferred tax impact.
Logic: Temporary difference creates deferred tax adjustment.
Impact: P&L shows book depreciation; Balance Sheet shows deferred tax asset/liability.
Common Mistake: Ignoring deferred tax calculation on depreciation timing differences.