What is the meaning of depreciation
>> February 14, 2009
Provision of depreciation account is the account of provision of depreciation. First of all we should understand provision of depreciation .Provision of depreciation is the collected value of all depreciation .With making of this account we are not credited depreciation in asset account. But transfer every year depreciation to provision of depreciation account. Every year we adopt this procedure and when assets are sold we will transfer sold assets ‘total depreciation to credit side of asset account. For calculating correct profit or loss on fixed asset. This provision uses with any method of calculating depreciation .
There are following feature of provision for depreciation account
- Fixed asset is made on its original cost and every year depreciation is not transfer to fixed asset account.
- Provision of depreciation account is Conglomerated value of all old depreciation.
- Entry of depreciation will change
Depreciation account DebitProvision for depreciation account credit
- This system can be used both in straight line and diminishing method of providing depreciation.
- Calculation of loss on sale is very important where is provision of depreciation account is kept.
Which we can calculate with following way
Cost of sale of fixed asset XXXX
Less total depreciation up to the date
Of sale XXXX
Written Down Value of sold asset XXXX
Less Sale price XXXX
- This loss will show in the credit side of asset account