Depreciation Adjustment in Final Accounts | Depreciation | Appreciation | Revaluation

 

Final Accounts | Adjustments | Depreciation | Accumulated depreciation | Revaluation

Adjustments given below trial balance must be adjusted for final account.

Adjustment entry means not adjusted while preparing trial balance.

It is also known additional information.

Almost all the adjustment entry effects dual aspect.

One is debit and other is credit. 

There are a number of adjustments to be made while finalizing the financial statements.

But our discussion will be limited to the following adjustments (limited by the curriculum):  

 

 

MAJOR ADJUSTMENTS:

Closing stock	Goods loss by fire and insurance claim
Outstanding expenses	Goods distribute as free sample
Prepaid expenses	Manager’s commission
Accrued revenue  or income	Bonus or pension to employees
Advance income or unearned income	Create reserve or fund
Depreciation on assets	Goods sold on sale or return basis
Appreciation on assets	Hidden adjustment:
Written off or amortized	(a) Interest on loan or debenture
Purchase or sale of fixed assets	(b) Interest on investment
Bad debts, provision and discount	(c) Monthly rent and salary
Recovery of bad debts

 

 

Depreciation on Assets

Depreciation is taken from Latin word ‘Depretium’. 

De means to decrease and Pretium means price.

Therefore, depreciation means decrease in price of asset.

Depreciation is charged on tangible assets except land. Land is not depreciated.

Fixed assets are depreciated but Intangible assets are written of or amortized.

Depreciation effects profit and loss or revenue and expenditures of an organization.

It is non-cash expenses. It is debited in profit and loss account.

 

Click on the photo for FREE eBooks

 

 

 

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

ADJUSTMENT: 6A

Extracted information:

Depreciation is charged on plant and machinery @ 10% p.a. (value Rs 600,000)

Depreciation is charged on furniture @ 15% p.a. (value Rs 50,000)        

Required: (1) Journal entry; (2) Show in profit and loss account and balance sheet 

 

Journal Entries

Date	Particulars		LF	Amount	Amount
	Depreciation on plant and machinery account	Dr		60,000
	To Plant and machinery account				60,000
	(Being- depreciation charged on machinery 600,000@10%)
	Depreciation on furniture account	Dr		7,500
	To Furniture account				7,500
	(Being- depreciation charged on furniture 50,000@15%)

 

P&L Account

Particulars		Amount	Particulars		Amount
To Depreciation on:
Plant and machinery	60,000
Furniture	+ 7,500	67,500

 

Balance Sheet

Liabilities		Amount	Assets		Amount
			Fixed assets:
			Plant and machinery	600,000
			Less: Depn @ 10%	(60,000)	540,000
			Furniture	50,000
			Less: Depn @ 15%	(7,500)	42,500

 

 

#####

Click on the link for YouTube videos:
Accounting Equation	http://tiny.cc/c89jkz
Basic Journal Entries in Nepali	http://tiny.cc/uaakkz
Basic Journal Entries	http://tiny.cc/8aakkz
Journal Entry and Ledger	http://tiny.cc/caakkz
Ledger	http://tiny.cc/haakkz
Subsidiary Book	http://tiny.cc/399jkz
Cash Book	http://tiny.cc/889jkz
Trial Balance & Adjusted Trial Balance	http://tiny.cc/c59jkz
Bank Reconciliation Statement (BRS)	http://tiny.cc/q59jkz
Depreciation	http://tiny.cc/ugakkz
Final Accounts: Class 11	http://tiny.cc/y89jkz
Adjustment in Final Accounts	http://tiny.cc/keakkz
Capital and Revenue	http://tiny.cc/peakkz
Single Entry System	http://tiny.cc/n19jkz
Non-Trading Concern	http://tiny.cc/j09jkz
Government Accounting	http://tiny.cc/hcakkz
Goswara Voucher (Journal Voucher)	http://tiny.cc/hcakkz

######

 

Accumulated Depreciation

Accumulated depreciation is the cumulative depreciation of an asset.

Here, cumulative means total upto last year plus current year (successive additions).

Accumulated depreciation is a contra asset account.

It has credit balance that reduces the overall asset value.

 

Depreciation is charged on original cost or historical cost.

Carrying value of an asset is the differences between historical cost and accumulated depreciation.

At the end of an asset’s useful life, its carrying value in the balance sheet will match its book salvage value.

 

 

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

ADJUSTMENT: 6B

Extracted trial balance is available of ABC Company on 31^st December 2022:

Particulars	Amount Dr	Amount Cr
Equipment	600,000
Accumulated depreciation		240,000

Additional information:

Depreciation is charged 20% on original value                                         

Required: (1) Journal entry; (2) Show in profit and loss account and balance sheet 

SOLUTION:

Journal Entries

Date	Particulars		LF	Amount	Amount
	Depreciation on equipment account	Dr		120,000
	To Accumulated depreciation on equipment account				120,000
	(Being- depreciation charged on equipment 600,000@20%)
	Profit and loss account	Dr		120,000
	To Depreciation on equipment account				120,000
	(Being- depreciation transferred to profit and loss account)

 

P&L Account

Particulars		Amount	Particulars		Amount
To Depreciation on equipment		120,000

 

Balance Sheet

Liabilities		Amount	Assets		Amount
Provision:			Fixed assets:
Accumulated depreciation on equipment		360,000	Equipment		600,000
(240,000 old + 120,000 new)

 

Keep in mind

Suppose, the company has purchased equipment for $600,000 on 1st January 2020 and accounts are closed on 31st December each year. The company uses straight line method depreciation at 20% p.a.
Depreciation in 2020 ($600,000 × 20%)	120,000
Depreciation in 2021 ($600,000 × 20%)	120,000
Depreciation in 2022 ($600,000 × 20%)	120,000
Now, Accumulated depreciation upto 2020 = 120,000 + 120,000 + 120,000 = $360,000

 

 

Revaluation of Fixed Asset

Sometimes, company’s fixed assets will change in their market prices.

When this occurs, the company must change its accounts by using either the cost method or revaluation techniques.

Revaluation of a fixed asset may either increase or decrease its value.

 

There are two methods for revaluation of fixed assets; they are cost method and revaluation method.

Cost method = Historical cost – Accumulated depreciation

Revaluation method = Cost value ± Increase or Decrease

 

 

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country 

ADJUSTMENT: 6C

Extracted trial balance is available on 31^st December:

Particulars	Amount Dr	Amount Cr
Plant and machinery	645,000
Land and building	725,500

Additional information:

Plant and machinery was revalued at $600,000

Land and building was revalued at $800,000                                            

Required: (1) Journal entry; (2) Show in profit and loss account and balance sheet 

SOLUTION:

Journal Entries

Date	Particulars		LF	Amount	Amount
	Depreciation on plant and machinery account	Dr		45,000
	To Plant and machinery account				45,000
	(Being- plant and machinery revalued from 645,000 to 600,000
	Land and building account	Dr		74,500
	To Appreciation on land and building account				74,500
	(Being- land and building revalued from 725,500 to 800,000

 

P&L Account

Particulars		Amount	Particulars		Amount
To Depreciation on plant and machinery		45,000	By Appreciation on land and building		74,500

 

Balance Sheet

Liabilities		Amount	Assets		Amount
			Fixed assets:
		360,000	Plant and machinery	645,000
			Less: Depreciation	(45,000)	600,000
			Land and building	725,500
			Add: Appreciation	+ 74,500	800,000

 

 

***********

Thank you for investing your time.

Please comment on article.

You can help me by sharing this article at your social media platform.

 

Jay Google, Jay YouTube, Jay Social Media

जय गूगल, जय युट्युब, जय सोशल मीडिया