Class 11 Accountancy - TELANGANA
Depreciation Provisions and Reserves
The chapter 'Depreciation Provisions and Reserves' in Class 11 Accountancy for Telangana (TSBSE) students focuses on the systematic allocation of the cost of fixed assets over their useful lives. You will learn the causes and methods of calculating depreciation, specifically the Straight Line Method (SLM) and Written Down Value (WDV) method, along with asset disposal and ledger entries. Understanding this chapter is essential for preparing accurate financial statements, as it ensures profits are not overstated and asset values are correctly reported on the balance sheet, frequently featuring in board exam numerical problems.
Start Learning FreeKey Concepts
Depreciation
The permanent, gradual, and continuous decrease in the book value of a fixed asset due to use, wear and tear, obsolescence, or expiration of time.
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.
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 decreasing depreciation amounts over time.
Provision
A liability or amount retained by way of providing for any known loss or depreciation whose amount cannot be determined with substantial accuracy.
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 Telangana (TSBSE) Class 11 Accountancy board exams, this chapter typically carries around 10 to 15 marks. Questions usually consist of a compulsory long-answer numerical problem worth 8 to 10 marks involving ledger accounts for Machinery and Depreciation over 2 to 3 years, along with short-answer and objective questions on methods, causes, and differences between provisions and reserves.
Frequently Asked Questions
What is the main 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 reducing book value, so the depreciation amount decreases each year.
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 loss in value of an asset.
What is the difference between a provision and a reserve?
A provision is created for a known liability or loss of uncertain amount (like depreciation or bad debts), whereas a reserve is created out of profits to strengthen the general financial position or meet future unknown contingencies.
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