Class 11 Accountancy - UP
Depreciation Provisions and Reserves
This chapter in Class 11 Accountancy for Uttar Pradesh (UPMSP) students explores the systematic allocation of fixed assets' cost over their useful lives, known as depreciation. You will learn the causes and methods of calculating depreciation, specifically the Straight Line Method (SLM) and Written Down Value (WDV) Method. The chapter also covers the creation of provisions and reserves, distinguishing between charges against profits and appropriations of profits. Mastering this chapter is crucial as numerical problems on depreciation are a permanent fixture in the UPMSP annual board examinations, helping you build a strong foundation for company accounts.
Start Learning FreeKey Concepts
Depreciation
The permanent, continuous, and gradual decrease in the book value of a fixed asset due to use, wear and tear, obsolescence, or efflux 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 every year on the reduced balance (book value) of the asset, meaning the depreciation amount decreases each year.
Provision
An amount retained by way of providing for any known liability whose exact amount cannot be determined with substantial accuracy (e.g., Provision for Doubtful Debts).
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 Uttar Pradesh (UPMSP) Class 11 Accountancy board exam, this chapter typically carries around 8 to 12 marks. Common question types include 1-mark objective questions on causes or methods of depreciation, short-answer questions differentiating between provisions and reserves, and a compulsory 6 or 8-mark long numerical problem involving ledger accounts for Asset and Depreciation over 2 to 3 years.
Frequently Asked Questions
What is the main difference between Straight Line Method and Written Down Value Method?
Are provisions a charge against profit or an appropriation of profit?
Provisions are always a charge against profit, meaning they must be provided even if the business incurs a net loss.
Why is depreciation charged on fixed assets?
Depreciation is charged to ascertain the true net profit of the business by matching revenues with expenses and to show the true and fair view of assets in the Balance Sheet at their current book value.
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