Class 11 Accountancy - MP
Depreciation Provisions and Reserves
The chapter 'Depreciation Provisions and Reserves' in Class 11 Accountancy for MPBSE students explains the systematic allocation of fixed assets' cost over their useful lives, known as depreciation. It covers causes and methods of calculating depreciation, particularly the Straight Line Method and Diminishing Balance Method, along with 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 general contingencies), which are crucial concepts tested heavily in Madhya Pradesh board exams.
Start Learning FreeKey Concepts
Depreciation
The permanent, gradual, and continuous decrease in the book value of a fixed asset due to wear and tear, lapse 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.
Diminishing Balance Method
A method where depreciation is calculated every year on the written-down value (book value) of the asset rather than the original cost.
Provision
A liability or amount written off or retained by way of providing for depreciation, renewal, or diminution in the value of assets, meant for a known liability.
Reserve
An 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 Madhya Pradesh Board (MPBSE) Class 11 Accountancy examinations, this chapter typically carries around 8 to 12 marks. Questions generally include objective type questions, short-answer theoretical questions regarding causes and differences, and a compulsory long-answer numerical problem on the preparation of Ledger Accounts (Asset Account and Depreciation Account) using either the Straight Line Method or Written Down Value Method.
Frequently Asked Questions
What is the main difference between Straight Line Method and Written Down Value Method?
In the Straight Line Method, depreciation is calculated on the original cost every year, whereas in the Written Down Value Method, it is calculated on the reducing book value of the asset.
Are provisions and reserves the same thing?
No, provisions are created against known liabilities or loss in asset value where the exact amount is uncertain, while reserves are appropriations of profits kept aside for strengthening the financial position or unknown future contingencies.
Is charging depreciation compulsory for a business?
Yes, charging depreciation is compulsory according to the matching principle and the Companies Act to show the true and fair view of the financial statements and asset values.
Learn Depreciation Provisions and Reserves with Your AI Tutor
10 different ways to study this chapter. Free for 3 chapters per day.
Lecture
Key Points
Interactive
Quiz
Flashcards