Class 11 Accountancy - MAHARASHTRA
Depreciation Provisions and Reserves
The chapter 'Depreciation Provisions and Reserves' in Class 11 Accountancy for Maharashtra State Board (MSBSHSE) introduces students to the systematic allocation of fixed asset costs over their useful lives. It covers the causes and need for depreciation, methods of calculating depreciation—specifically the Straight Line Method (SLM) and Reducing Balance Method (RBM)—and the preparation of asset and depreciation accounts. Furthermore, the chapter distinguishes between provisions (created for known liabilities) and reserves (created for strengthening financial position or contingencies). Mastering this chapter is crucial for board exams as it forms the basis for financial statement adjustments.
Start Learning FreeKey Concepts
Depreciation
A permanent, gradual, and continuous decrease in the book value of a fixed asset due to wear and tear, efflux of time, or obsolescence.
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 annually.
Reducing Balance Method (RBM)
A method where depreciation is calculated every year on the diminishing balance (Book Value) of the asset rather than its original cost.
Provision
An amount set aside out of profits to provide for a known liability or loss, the exact amount of which is uncertain on the balance sheet date.
Reserve
An amount set aside out of profits and other surpluses to strengthen the financial position of the business or to meet future unknown contingencies.
Important Formulas
Board Exam Info
In the Maharashtra (MSBSHSE) Class 11 Accountancy board/final exams, this chapter typically carries around 8 to 10 marks. Common question types include objective questions, short-answer theory questions on causes or differences, and practical 8-mark numerical problems involving the preparation of Asset Account and Depreciation Account for 2 to 3 years under SLM or RBM methods.
Frequently Asked Questions
What is the main difference between Straight Line Method and Reducing Balance Method?
In SLM, depreciation is calculated on the original cost and remains constant every year. In RBM, depreciation is calculated on the diminishing (reduced) book value, so the depreciation amount decreases every year.
Why is depreciation charged on fixed assets?
Depreciation is charged to correctly ascertain the net profit or loss of a business by matching revenues with the cost of assets used, and to show the true and fair view of assets in the Balance Sheet.
What is the difference between a Provision and a Reserve?
A provision is created for a known liability or anticipated loss (like provision for depreciation or doubtful debts), whereas a reserve is created out of profits to strengthen financial stability or for general/specific future expansion.
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