MBA-2018

1.CONCEPT
2.OBJECIVE
3.CAUSES
4.DEPRECIATION METHODS
5.CASE ANALYSIS FOR JSL
14.09.2018 DEPRECIATION Slide No.: 2
MBA-2018

1. Depreciation is cost of lost usefulness or cost of

diminution of service yield from a use of fixed
asset.
2. A part of the acquisition cost of the fixed assets is
treated or allocated as an expense in each of the
accounting period in which the asset is utilized.

14.09.2018 DEPRECIATION Slide No.: 2

MBA-2018

In accounting terms , depreciation is the

reduction of recorded cost of a fixed asset
in a systematic manner until the value of
the asset becomes zero or negligible
unless it have a residual value.

14.09.2018 DEPRECIATION Slide No.: 2

MBA-2018

True
position
Statement

Correct
Income Funds for
Objectives replacemen
Measureme t
nt

Ascertainm
ent of true
cost of
production

14.09.2018 DEPRECIATION Slide No.: 5

MBA-2018

Wear & Tear

Maintenance
Internal
Change in
production
Reasons for Decrease in
Depreciation Market value

Obsolescence
External
Efflux of time

14.09.2018 DEPRECIATION Slide No.: 6

MBA-2018

Estimate
d Useful
life of
the asset

Factors to
Compute
Depreciatio
n
Cost of Residual
the value of
Asset the asset

14.09.2018 DEPRECIATION Slide No.: 7

MBA-2018

CONS PROS
1. Simplicity 1. No provision for
2. Suitable for replacement
small firms 2. Undue pressure on
3. Useful for assets final years
having lesser 3. Unsuitable for long life
value assets.

PROS
CONS
1. acceptable for
1. Charges heavy income tax
amount of depreciation purposes
in earlier years
2. Cal. On opening
2. Can be cal. If residual balance asset
value of the asset is
there. 3. Equalizes the
yearly burden
14.09.2018 DEPRECIATION Slide No.: 8
MBA-2018

• Straight-line depreciation is a very common and

simple method of calculating the expense. In
straight-line depreciation, the expense amount is
the same every year over the useful life of the asset.
• Depreciation Formula for the Straight Line Method:

Depreciation (Cost – Salvage value)

=
Expense Useful life

14.09.2018 DEPRECIATION Slide No.: 2

MBA-2018

• WDV is a method of depreciation in which a

fixed rate of depreciation is charged on the book
value of the asset, over its useful life.
• Depreciation Formula for the Written down
Value Method:
n
Depreciation
Expense
= 1- √ Residual value
Cost of Asset
X 100

Where, n is Useful life

14.09.2018 DEPRECIATION Slide No.: 2
MBA-2018

Case of Power Plant Equipment at Jindal

Stainless Limited has been taken into
consideration to understand the
depreciation methodology.

14.09.2018 DEPRECIATION Slide No.: 2

MBA-2018

14.09.2018 DEPRECIATION Slide No.: 2

THANK Y U
We are open for
Questions….