At the time of addition
Assets NA account -------dr
To asset clearing account ----CR
At the time of retirement
the nbv amount has been moved to the gain & loss account.
In sale case
we need to pass a journal entry to transfer the amount from gain & loss account cr and asset sale clearing account cr.
Loading, Unloading and Installation Charges during the time of shifting of the company cant be capitalised as such these Expenses are of (Opex) Operating Expenses nature.
Following are the depriciation methods that are used in FA module:
1. Flat rate method
2. Calculated method
3. Table method
4. Formula method
5. Production method
4. Explain how to determine whether an expense is an asset or not? When you receive an invoice that shows that the company has purchased a tool or something, what makes you think this thing is an asset or its an expense. Is it the price of it or what?
The expenses can only be capitalised in the following circumstances:
1. It must be related with the asset.
2. It must be essential to make the asset in working condition.
3. It must be above the capitalisation limit as per the prescribed policies.
There are two types of fixed assets tangible and intangible assets.
Tangible assets: A physical asset whose presence can be felt and touched.
Ex. Furniture and Fixtures, Plant and Machinery
Intangible Assets: Assets whose presence cannot be felt or touched.
Ex: Goodwill, patents, trademarks.
Asset life cycle means the cycle in which the asset canprovide or help provide futureeconomic benefits. Each asset has a specific life cycle, it can be measured by evaluating the asset itself.
We can decided which method of deprecation is best on the basis of usefulness (benefits) provided by the asset.
When we prefer SLM:-
we preferred SLM where the equal amount of benefit is derived from the asset through the useful life of the asset. e.g A room's capacity of storing the goods remain same in each year weather old or new.
When we prefer DBM:-
we preferred DBM where resulting benefit from the asset diminishing (decreasing) year by year.
Diminishing Balance Method or Written Down Value Method
Under this method, depreciation is charged at a fixed rate every year but on
reducing balance i.e., on balance reduced each year during the economic life of
the asset by the amount of depreciation till the asset is reduced to its scrap
For example, if the cost of the asset is Rs. 1,000 the rate of depreciation
is 10 % on Rs. 1,000 i.e., Rs. 100, in the second year, it will be 10 % on Rs
900 i.e., Rs. 90 is the third year, it will be 10 % on Rs 810 (900-90) i.e., Rs.
81 and so on.
(Purchase Price of Asset - Approximate Salvage Value) Estimated Useful
Life of Asset
Example: You buy a new computer for your business costing approximately
$5,000. You expect a salvage value of $200 selling parts when you dispose of it.
Accounting rules allow a maximum useful life of five years for computers. In the
past, your business has upgraded its hardware every three years, so you think
this is a more realistic estimate of useful life, since you are apt to dispose
of the computer at that time. Using that information, you would plug it into the
($5,000 purchase price - $200 approximate salvage value) 3 years estimated
The answer, $1,600, is the depreciation charges your business would take
annually if you were using the straight line method.