Class 11 Accountancy - ODISHA
Depreciation Provisions and Reserves
The chapter 'Depreciation Provisions and Reserves' in Class 11 Accountancy for Odisha (BSE) students explores the systematic allocation of fixed asset costs over their useful lives. It covers the causes and methods of calculating depreciation, primarily the Straight Line Method (SLM) and Diminishing Balance Method (WDV). Students also learn the creation and distinction between provisions and reserves, which are vital for maintaining true financial positions and strengthening the business. This chapter is highly scoring and carries significant weight in the board exams through both theoretical questions and practical ledger accounts.
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 amount of depreciation is charged every year on the original cost of the asset.
Written Down Value Method (WDV)
A method where depreciation is calculated every year on the reduced balance (book value) of the asset rather than the original cost.
Provision
A liability or amount retained to provide for a known liability, the exact amount of which is uncertain on the balance sheet date, such as provision for bad debts.
Reserve
An amount set aside out of profits to strengthen the financial position of the business, which may be general or specific.
Important Formulas
Board Exam Info
This chapter typically carries around 8 to 12 marks in the Odisha (BSE) Class 11 Accountancy board examinations. Question types usually include short-answer theoretical questions differentiating between provisions and reserves, and a mandatory 6-mark practical problem on preparing the Asset Account and Depreciation Account using either the SLM or WDV method over a span of two to three years.
Frequently Asked Questions
What is the difference between SLM and WDV methods of depreciation?
In SLM, depreciation is calculated on the original cost and remains constant every year. In WDV, depreciation is calculated on the reducing book value, resulting in a decreasing amount of depreciation each year.
Are provisions charged against profits or appropriated out of profits?
Provisions are a charge against profits, meaning they must be created even if the business incurs a net loss, as they cover known liabilities or asset reductions.
Why is depreciation treated as a non-cash expense?
Depreciation reduces the book value of an asset without involving any actual outflow of cash from the business.
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