Class 11 Accountancy - PUNJAB
Depreciation Provisions and Reserves
The chapter 'Depreciation Provisions and Reserves' in Class 11 Accountancy for Punjab School Education Board (PSEB) focuses on the systematic allocation of the cost of fixed assets over their useful lives. Students learn the fundamental causes of depreciation, such as wear and tear, obsolescence, and efflux of time. The curriculum covers important methods of calculating depreciation, specifically the Straight Line Method (SLM) and the Diminishing Balance Method (Written Down Value method). Additionally, the chapter explains the accounting treatment for creating provisions and reserves, highlighting the distinction between revenue reserves and capital reserves, which is crucial for preparing final accounts.
Start Learning FreeKey Concepts
Depreciation
The permanent, continuous, and gradual reduction in the book value of a fixed asset due to use, passage 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 annual expense.
Written Down Value Method (WDV)
A method where depreciation is calculated at a fixed percentage on the diminishing book value (cost minus accumulated depreciation) of the asset each year.
Provision
A liability or amount retained by way of providing for any known liability or depreciation whose exact amount cannot be determined with substantial accuracy.
Reserve
Amounts set aside out of profits and other surpluses to strengthen the financial position of the business, which can be general or specific.
Important Formulas
Board Exam Info
In the PSEB Class 11 Accountancy board examination, this chapter typically carries around 8 to 12 marks. Common question types include short-answer questions defining provisions and reserves, differences between SLM and WDV methods, and practical 6-mark or 8-mark numerical problems involving ledger accounts for machinery, depreciation, and asset disposal over a span of two to three years.
Frequently Asked Questions
What is the main difference between Straight Line Method and Written Down Value Method?
Under SLM, depreciation is calculated on the original cost and remains constant every year. Under WDV, depreciation is calculated on the reduced balance (book value), so the depreciation amount decreases each year.
What is the difference between a provision and a reserve?
A provision is created for a known liability or loss whose exact amount is uncertain (e.g., provision for depreciation or doubtful debts). A reserve is created out of profits to strengthen the financial position or meet future unknown contingencies.
Is depreciation treated as a cash expense?
No, depreciation is a non-cash expense. It does not involve any actual outflow of cash from the business; it only records the reduction in the value of a fixed asset.
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