Class 11 Accountancy - GUJARAT
Depreciation Provisions and Reserves
The chapter 'Depreciation Provisions and Reserves' in Class 11 Accountancy for Gujarat (GSEB) students explores the systematic allocation of fixed asset costs and the creation of financial cushions. Depreciation reflects the gradual decrease in the value of assets due to wear and tear or obsolescence. Students learn methods like Straight Line Method (SLM) and Diminishing Balance Method (WDV) to calculate depreciation, along with distinctions between provisions (created for known liabilities) and reserves (created for strengthening financial position or general contingencies). Mastering this chapter is crucial for preparing accurate final accounts and scoring high in board exams.
Start Learning FreeKey Concepts
Depreciation
The permanent, continuing, and gradual decrease in the book value of a fixed asset due to use, efflux of time, or obsolescence.
Straight Line Method (SLM)
A method where a fixed percentage of the original cost of the asset is written off every year as depreciation.
Diminishing Balance Method (WDV)
A method where depreciation is calculated every year on the reduced balance (Written Down Value) of the asset rather than the original cost.
Provision
A liability or amount retained by way of providing for any known loss or depreciation whose amount cannot be determined with substantial accuracy.
Reserve
Amount set aside out of profits and other surpluses to strengthen the financial position of the business, which may be general or specific.
Important Formulas
Board Exam Info
In the Gujarat Board (GSEB) Class 11 Accountancy exam, this chapter typically carries around 8 to 10 marks. Common question types include short numerical problems on calculating depreciation using SLM and WDV methods, journal entries for asset disposal, and theoretical distinctions between provisions and reserves.
Frequently Asked Questions
What is the difference between SLM and WDV methods of depreciation?
In SLM, depreciation is charged on the original cost every year and remains constant. In WDV, depreciation is calculated on the reduced book value every year, resulting in a higher depreciation amount in early years and decreasing over time.
Are provisions a charge against profits or an appropriation of profits?
Provisions are always a charge against profits because they are created for known liabilities or losses, and must be provided even if the business incurs a net loss.
What happens to the scrap value in the Diminishing Balance Method?
In the Diminishing Balance Method, the scrap value is not directly used in the formula each year; instead, the rate of depreciation is applied to the diminishing balance until the asset reaches its estimated residual value.
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