Class 11 Accountancy - ISC
Depreciation
The chapter 'Depreciation' in Class 11 ISC Accountancy introduces students to the systematic allocation of a fixed asset's cost over its useful life. It covers the fundamental accounting concepts of matching revenues and expenses, ensuring that assets are not overstated in the Balance Sheet. Students will learn the underlying causes of depreciation, such as wear and tear, obsolescence, and efflux of time. The curriculum deeply focuses on numerical problems involving two primary methods: Straight Line Method (SLM) and Written Down Value (WDV) Method, along with asset disposal and provision for depreciation accounts, which frequently appear as long-answer questions in ISC board exams.
Start Learning FreeKey Concepts
Meaning and Causes of Depreciation
Depreciation is the permanent, continuous, and gradual decrease in the book value of a fixed asset due to use, passage of time, technological obsolescence, or depletion.
Straight Line Method (SLM)
A method where a fixed percentage of the original cost of the asset is charged as depreciation every year, resulting in an equal amount of depreciation expense annually.
Written Down Value (WDV) Method
A method where depreciation is calculated at a fixed percentage on the reduced balance (book value) of the asset each year, leading to declining depreciation amounts over time.
Provision for Depreciation Account
An alternative accounting treatment where the asset is maintained at its original cost in the ledger, and accumulated depreciation is transferred to a separate provision account until the asset is sold.
Profit or Loss on Sale of Asset
The financial gain or loss calculated by comparing the net book value of an asset on the date of sale with its actual sale proceeds.
Important Formulas
Board Exam Info
In the ISC Class 11 Accountancy exam, Depreciation typically carries around 8 to 12 marks. Questions usually include a compulsory practical numerical problem ranging from 6 to 8 marks, requiring the preparation of Asset Account, Depreciation Account, and Provision for Depreciation Account over a span of two to three financial years involving purchases and sales of machinery.
Frequently Asked Questions
What is the difference between Straight Line Method and Written Down Value Method?
In SLM, depreciation is calculated on the original cost and remains constant every year. In WDV, depreciation is calculated on the reduced book value, meaning the depreciation amount decreases each year.
Why is depreciation treated as a non-cash expense?
Because it does not involve any actual outflow of cash from the business; it is merely an accounting adjustment to record the reduction in an asset's value.
How do we calculate depreciation if an asset is purchased midway through the financial year?
Depreciation is calculated only for the specific number of months the asset was actually used in the business during that financial year, starting from the date of purchase.
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