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Class 11 Accountancy TS Grewal Solutions Chapter 11 - Depreciation

Q: 5. What are the causes of Depreciation?

Physical Wear and Tear - Any material will eventually degrade after extensive usage, as pieces wear out and must be replaced. When the property can no longer be fixed, it should be discarded. When fixed assets, such as a car or machinery, are used over an extended length of time, they inevitably wear down.Expiration of User Rights - Someone may have the right to use a fixed asset (such as software or a database) for a period of time. If this is the case, its lifespan ends when the user rights expire, thus the reduction must be finished at the conclusion of the term of use. Land may begin to disintegrate by the end of time as a result of natural disasters or circumstances. Likewise, equipment particles may start to corrode.Obsolescence - Some machinery will be replaced by more efficient models, reducing the need for original equipment.

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Class 11 Accountancy TS Grewal Solutions Chapter 11 - Depreciation

Depreciation By TS Grewal

The TS Grewal Class 11 Accountancy Chapter 11 - Depreciation solutions are presented here by experts so that students can understand the concepts well and get good marks in their exams. The solutions are provided in such a manner that students get familiar with the concepts used to solve the problems. The language is crisp and very interesting so that students get curious about learning.

This chapter starts with the meaning of Depreciation then we are introduced to similar terms like Depletion, Amortization, Obsolescence. The 3 principal features of Depreciation are also provided. The most important topics which are frequent in the exams are Factors affecting Depreciation, Methods of Calculation, Reserves, and their Importance.

What is Depreciation?

The term Depreciation is defined as the dissolution in the value of a fixed asset due to its usage, obsolescence, or time.

The general meaning of Depreciation includes the terms Depletion, Amortization, and Obsolescence.

Depreciation is the decline in the cost of a fixed asset in a sequential sequence due to wear and tear until the asset becomes outdated in accounting terms. It refers to the amount of time that an asset may be deemed productive. The fixed asset has reached the end of its useful life and is no longer considered cost-effective to operate.

Three principal characteristics of Depreciation:

Depreciation is a decrease in the value of a book of fixed assets.
Depreciation refers to the loss of value of assets due to timing and expiration.
Depreciation is a continuous process until the asset ends.

Causes of Depreciation:

Physical Wear & Tear - Any material will gradually degrade on being thoroughly used, as parts wear out and need to be replaced. Eventually, the property can no longer be repaired, and it should be disposed of. When fixed assets such as a car or machinery are utilized for a long period, they eventually wear down.
Expiry of User Rights - A fixed asset may be within the right of someone to use (such as software or a database) for some time. If so, its lifespan expires when the user rights expire, so the reduction must be completed at the end of the term of use. By the end of time, land may begin to erode due to natural tragedies or natural factors. Similarly, equipment particles may begin to corrode.
Obsolescence - Some machines will be replaced by efficient machines, which reduce the use of original equipment. Today's machines and technology may be obsolete and may need to be scrapped.

Factors Affecting the Amount of Depreciation

The price of the asset.
Estimated salvage value. Salvage value (or residual value) is the amount of money a company expects to recover, the cost of disposal, the date on which the goods are cleared, sold, or sold.
The useful period of assets. The useful period is the timeline for which the company plans to use its products.

Advantages and Disadvantages of Straight Line Method:

Advantages	Disadvantages
It's a straightforward way for computing depreciation. Assets can be depreciated up to the net scrap value or zero value using this procedure. The same amount is charged as depreciation in the Profit & Loss Account under this procedure.	In this system, the asset's book value will be charged more for maintenance and repair in the later years than in the first. Determining an appropriate rate of depreciation is tough. It isn't appropriate for assets with a lengthy lifespan and high value.

Methods of Calculating Depreciation:

Straight Line Method (SLM)

Under the Straight Line Method depreciation, a reduced amount of depreciation is charged annually, during the life of the asset. During the lifespan of an asset, a fixed depreciation amount is charged yearly under the depreciation Straight Line Method. The annual depreciation charge is included in the actual cost and is maintained year on year. The amount of yearly depreciation is calculated based on the Original Cost, and it remains constant year after year. This method is also known as the 'Real Cost Method' or 'Fixed Input Method'.

Advantages:

It's an easy way to calculate the descent.
Under this method, the asset may be reduced to a net amount or zero value.
Under this method, the same amount is charged as a deduction in the Profit and Loss Account.

Disadvantages:

Under this method, the value of the asset will never be zero.
It is difficult to determine the exact degree of depreciation.

Written Down Value (WDV)

Under the Written Down Value method, depreciation is charged on the book value (cost-reduction) of assets annually. Depreciation is imposed on the asset's book value (cost – depreciation) every year under the Written Down Value method. Under the WDV method, the volume of the book continues to decrease with it, the annual decline also continues to decline. Because book value decreases under the WDV approach, annual depreciation decreases as well. This method is also known as the 'Reducing Measurement Method' or 'Reducing Input Method'.

Straight Line Method	Written Down Value Method
Depreciation as a Basis for Charging
The initial cost of fixed assets is used to compute depreciation.	The book value of fixed assets is used to calculate depreciation.
Annual Depreciation Amount
For all years of useful life, the amount of yearly depreciation is set.	Year after year, the amount of depreciation decreases.
Income Tax Recognition
The Income Tax Department does not recognise the Straight Line Method.	The Income Tax Department recognises the Written Down Value procedure.
Depreciation and Repairs Cost
Depreciation and repairs add up to a lower total cost in the early years and a greater total cost in the later years.	Throughout the asset's life, the total cost of depreciation and maintenance remains more or less constant.

The WDV method is recognized by the Income Tax Department.

The Significance of Depreciation

Determining the Genuine Profit or Loss- A company's true profit can only be established when all of the costs acquired are debited to the profit and loss account.
When depreciation is not applied, the asset is reported in the balance sheet at a value that is greater than its true worth.
In this circumstance, the balance sheet does not reflect the company's true financial situation.
To avoid paying too much income tax: If depreciation is not deducted from the profit and loss statement, the net profit will be higher than the real profit. As a result, the corporation will be required to pay additional income tax.

Preparation Tips

Preparation becomes easy if you follow some worked out measures by the subject gurus. Some are listed below.

Solve the previous year's questions and give some mock tests to get an idea of the questions asked in different exams.
The important questions are repeatedly asked in exams so make a list of the following previous year trends.
Focus on the numerical as well because they are formula-based and very easy to score which can improve your overall score.
Try to write the formula on a sheet and use it for quick revision purposes. It will save you time and help you remember them.

TS Grewal Chapter 11 - Depreciation solutions are in accordance with the latest CBSE syllabus and are a must-read to excel in your board examinations. Each solution is carefully solved such that not only you can understand the concept behind that but also you learn the basic idea behind the problem. So that even if the questions are tweaked a little bit you could easily solve them by yourself. Happy learning and best of luck with your exams.

FAQs on Class 11 Accountancy TS Grewal Solutions Chapter 11 - Depreciation

1. What is the significance of Depreciation?

Determining the Genuine Profit or Loss- A company's true profit can only be determined after all costs have been charged to the profit and loss account.
When depreciation is not applied, the asset is reported in the balance sheet at a value larger than its real value.
In this case, the balance sheet does not accurately reflect the company's financial status.
To avoid paying too much income tax, do not remove depreciation from the profit and loss statement; otherwise, the net profit will be more than the true profit. As a result, the firm will have to pay more income tax.

2. What does Depreciation mean?

Depreciation is the consecutive drop in the cost of a fixed asset due to wear and tear until the equipment becomes obsolete in accounting terms. It is the period of time that an asset may be considered productive. The fixed asset has outlived its useful life and is no longer considered cost-effective to operate. Depreciation is described as the loss of a fixed asset's value as a result of its use, obsolescence, or passage of time.

3. What does the Straight Line Method mean?

The depreciation Straight Line Method charges a fixed depreciation amount yearly for the life of an item. The annual depreciation is determined based on the Original Cost and remains consistent year after year. The yearly depreciation charge is included in the total cost and is consistent year after year. This approach is also referred to as the 'Real Cost Method' or the 'Fixed Input Method.' It's a technique of calculating periodic depreciation that includes subtracting the scrap value from the cost of a depreciable item and dividing the resultant amount by the asset's expected number of usable life periods — compare compound-interest approach.

4. What does Written Down Value mean?

Depreciation is charged on the book value (cost-reduction) of assets on a yearly basis under the Written Down Value method. The volume of the book continues to drop with the WDV technique, as does the yearly decline. This approach is also known as the 'Reducing Measurement Method' or the 'Reducing Input Method.' Under the Written Down Value method, depreciation is applied to the asset's book value (cost – depreciation) every year. Annual depreciation reduces when book value declines under the WDV method.

5. What are the causes of Depreciation?

Physical Wear and Tear - Any material will eventually degrade after extensive usage, as pieces wear out and must be replaced. When the property can no longer be fixed, it should be discarded. When fixed assets, such as a car or machinery, are used over an extended length of time, they inevitably wear down.
Expiration of User Rights - Someone may have the right to use a fixed asset (such as software or a database) for a period of time. If this is the case, its lifespan ends when the user rights expire, thus the reduction must be finished at the conclusion of the term of use. Land may begin to disintegrate by the end of time as a result of natural disasters or circumstances. Likewise, equipment particles may start to corrode.
Obsolescence - Some machinery will be replaced by more efficient models, reducing the need for original equipment.