Journal Entry: Depreciation, Amortization, Appreciation
Arjun EP
(A) Depreciation on Tangible Assets
All the business organizations purchase fixed assets like building, plant and machinery, furniture, vehicle, equipment etc.
These assets are not purchased for resale.
These assets help to run-on the business smoothly.
These assets also help to generate profit.
After using these assets, their life, working capacity and value will be decreased.
This decrease value is called depreciation.
Depreciation is non-cash expenses.
It is debited in profit and loss account.
Depreciation on Fixed Assets
|
Depreciation on fixed assets (by name) |
Dr |
Depreciation on fixed assets |
Increase in expenses |
|
To Fixed assets (by name) |
|
Name of fixed assets |
Decrease in assets |
|
(Being- depreciation is charged on ………..) |
|
|
|
Journal Entry
In the book of …………
|
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
|
|
Depreciation on fixed assets (by name) |
Dr |
|
xxxx |
|
|
|
To Fixed assets (by name) |
|
|
|
xxxx |
|
|
(Being- depreciation is charged on ……………..) |
|
|
|
|
|
|
Profit and loss account |
Dr |
|
xxxx |
|
|
|
To Depreciation on fixed assets account |
|
|
|
xxxx |
|
|
(Being- depreciation transferred to P&L account) |
|
|
|
|
|
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|
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Keep in Mind (KIM)
|
Depreciation is non-cash expenses. Its short form is Depn Some fixed assets are: Plant and machinery, land and building, furniture and fitting, vehicles, equipment. Depreciation is not charged on land. |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Currency of your country
PROBLEM: 15A
SK Company (P) Ltd has following extracted transactions on 31st December:
Depreciation is charged on machinery Rs 20,000.
Depreciation is charged on delivery truck Rs 15,000.
Depreciation is charged on car Rs 12,000.
Depreciation is charged on computers Rs 8,000.
Depreciation is charged on bike Rs 6,000.
Depreciation is charged on furniture valued Rs 5,000 @ 20%.
Depreciation is charged on equipment valued Rs 300,000 life is 5 years.
Required: Journal entries
SOLUTION
Journal Entry for American Style
|
Date |
|
|
Debit $ |
Credit $ |
|
Sep, 3 |
Depreciation account |
|
20,000 |
|
|
|
Machinery account |
|
|
20,000 |
|
|
To record depreciation on machinery |
|
|
|
|
|
|
|
|
|
Journal Entry for European Style
|
Date |
|
|
|
€ |
€ |
|
Sep, 3 |
Depreciation account |
Dr |
|
20,000 |
|
|
|
Machinery account |
|
|
|
20,000 |
|
|
To record depreciation on machinery |
|
|
|
|
|
|
|
|
|
|
|
Journal Entries
In the book of SK Company (P) Ltd
|
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
|
31 Dec |
Depreciation on machinery account |
Dr |
|
20,000 |
|
|
|
To Machinery account |
|
|
|
20,000 |
|
|
(Being- depreciation charged on machinery) |
|
|
|
|
|
31 Dec |
Depreciation on delivery truck account |
Dr |
|
15,000 |
|
|
|
To Delivery truck account |
|
|
|
15,000 |
|
|
(Being- depreciation charged on delivery truck) |
|
|
|
|
|
31 Dec |
Depreciation car account |
Dr |
|
12,000 |
|
|
|
To Car account |
|
|
|
12,000 |
|
|
(Being- depreciation charged on car) |
|
|
|
|
|
31 Dec |
Depreciation on computer account |
Dr |
|
8,000 |
|
|
|
To Computer |
|
|
|
8,000 |
|
|
(Being- depreciation charged on computer) |
|
|
|
|
|
31 Dec |
Depreciation on bike account |
Dr |
|
6,000 |
|
|
|
To Bike account |
|
|
|
6,000 |
|
|
(Being- depreciation charged on bike) |
|
|
|
|
|
31 Dec |
Depreciation on furniture account |
Dr |
|
1,000 |
|
|
|
To Furniture account |
|
|
|
|
|
|
(Being- depreciation charged on furniture 5,000@20%) |
|
|
|
1,000 |
|
31 Dec |
Depreciation on equipment account |
Dr |
|
60,000 |
|
|
|
To Equipment account |
|
|
|
60,000 |
|
|
(Being- depn charged on equipment 300,000 ÷ 5 years) |
|
|
|
|
#####
#######
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Click on link for YouTube videos topic wise : |
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Accounting Equation |
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Basic Journal Entries in Nepali |
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Basic Journal Entries |
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Journal Entry and Ledger |
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Ledger Account |
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Subsidiary Book |
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Cash Book |
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Trial Balance and Adjusted Trial Balance |
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Bank Reconciliation Statement (BRS) |
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Depreciation |
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Click on link for YouTube videos chapter wise: |
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Financial Accounting and Analysis (All videos) |
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Accounting Process |
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Accounting for Long Lived Assets |
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Analysis of Financial Statement |
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#####
(B) Written Off or Amortization
Assets are fixed assets, current assets and fictitious assets.
Fixed assets are depreciated but fictitious assets amortized or written off.
In current assets, there is never depreciation.
Fictitious assets are also known as intangible assets
These assets do not exist in touchable form and in monetary value.
Some fictitious assets are:
Preliminary expenses
Discount on issue of share or debentures (for limited company)
Loss on issue of debentures (for limited company)
Huge investment on advertisement etc.
Written off Intangible Assets
|
Fictitious assets (by name) written off |
Dr |
Depreciation on fictitious assets |
Increase in expenses |
|
To Fictitious assets (by name) |
|
Name of fictitious assets |
Decrease in assets |
|
(Being- fictitious assets written off) |
|
|
|
Journal Entry
In the book of …………
|
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
|
|
Amortization or written off account |
Dr |
|
xxxx |
|
|
|
To Fictitious assets (by name) |
|
|
|
xxxx |
|
|
(Being- fictitious assets written off) |
|
|
|
|
|
|
Profit and loss account |
Dr |
|
xxxx |
|
|
|
To Amortization or written off account |
|
|
|
xxxx |
|
|
(Being- fictitious assets written off transferred |
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to profit and loss account) |
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Keep in Mind (KIM)
|
Written off and amortization are non-cash expenses. |
|
There are two types of assets. They are fixed assets and fictitious assets. |
|
Fixed assets: plant and machinery, land and building, furniture and fitting, vehicles, equipment etc. |
|
fictitious assets: preliminary expenses, discount on share or debentures, loss on issue of debentures etc. |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Currency of your country
PROBLEM: 15B
Surat Textile Ltd has following transactions on 31st December:
Write off preliminary expenses Rs 15,000.
Write off discount on issue of debenture Rs 10,000
Amortize underwriting commission Rs 14,000
Goodwill Rs 80,000 is written off during 5 years
Discount on shares Rs 50,000 is amortized in 4 years.
Required: Journal entries
SOLUTION:
Given and working note:
Goodwill written off = Rs 80,000 ÷ 5 years = Rs 16,000
Discount on issue of shares = Rs 50,000 ÷ 4 years = Rs 12,500
Journal Entry for American Style
|
Date |
|
|
Debit $ |
Credit $ |
|
Dec, 31 |
Preliminary expenses amortized account |
|
15,000 |
|
|
|
Preliminary expenses account |
|
|
15,000 |
|
|
To record preliminary expenses written off |
|
|
|
Journal Entry for European Style
|
Date |
|
|
|
€ |
€ |
|
Dec, 31 |
Preliminary expenses written off account |
Dr |
|
15,000 |
|
|
|
Preliminary expenses account |
|
|
|
15,000 |
|
|
To record preliminary expenses written off |
|
|
|
|
Journal Entries
In the book of Birgunj Textile Ltd
|
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
|
31 Dec |
Preliminary expenses written off account |
Dr |
|
15,000 |
|
|
|
To Preliminary expenses account |
|
|
|
15,000 |
|
|
(Being- preliminary expenses written off) |
|
|
|
|
|
31 Dec |
Discount on issue of debenture written off A/c |
Dr |
|
10,000 |
|
|
|
To Discount on issue of debenture account |
|
|
|
|
|
|
(Being- discount on issue of debenture written off) |
|
|
|
10,000 |
|
31 Dec |
Amortization of underwriting commission A/c |
Dr |
|
12,000 |
|
|
|
To Underwriting commission account |
|
|
|
12,000 |
|
|
(Being- depreciation charged on car) |
|
|
|
|
|
31 Dec |
Goodwill written off account |
Dr |
|
16,000 |
|
|
|
To Goodwill account |
|
|
|
16,000 |
|
|
(Being- goodwill written off) |
|
|
|
|
|
31 Dec |
Amortizations of issue of shares account |
Dr |
|
12,500 |
|
|
|
To Issue of share account |
|
|
|
12,500 |
|
|
(Being- depreciation charged on car) |
|
|
|
|
|
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###########
(C) Appreciation on Fixed Assets
Sometime value of few assets may be increase.
It is just apposite of depreciation.
The value of asset increases due to inflation.
Increase value of assets is added with related asset.
It is also recorded in credit side of profit and loss account.
Importer based countries is effected due to dollar.
Appreciation on Tangible Assets
|
Fixed assets account (by name) |
Dr |
Name of fixed assets |
Increase in assets |
|
To Appreciation on fixed assets |
|
Increase value of fixed assets |
Increase in income |
|
(Being- fixed assets appreciated) |
|
|
|
Journal Entry
In the book of …………
|
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
|
|
Fixed assets account (by name) |
Dr |
|
xxxx |
|
|
|
To Appreciation on fixed assets (by name) |
|
|
|
xxxx |
|
|
(Being- fixed assets appreciated) |
|
|
|
|
|
|
Appreciation on fixed assets account |
Dr |
|
xxxx |
|
|
|
To Profit and loss account |
|
|
|
xxxx |
|
|
(Being- appreciation transferred to P&L account) |
|
|
|
|
|
|
|
|
|
|
|
Keep in Mind (KIM)
|
Appreciation is non-cash income. Generally, value of land is appreciated. |
PROBLEM: 15C
Goyanka Group has following transactions on 31st December:
Value of land is increased by Rs 200,000.
Old vehicle book value Rs 350,000 is revalued Rs 400,000.
Due to depreciation method changed, value of machinery increased by Rs 40,000
Required: Journal entries
SOLUTION:
Journal Entry for American Style
|
Date |
|
|
Debit $ |
Credit $ |
|
Dec, 31 |
Land account |
|
200,000 |
|
|
|
Appreciation on land account |
|
|
200,000 |
|
|
To record appreciation on land |
|
|
|
Journal Entry for European Style
|
Date |
|
|
|
€ |
€ |
|
Dec, 31 |
Land account |
Dr |
|
200,000 |
|
|
|
Appreciation on land account |
|
|
|
200,000 |
|
|
To record appreciation on land |
|
|
|
|
|
|
|
|
|
|
|
Journal Entries
In the book of Goyanka Group
|
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
|
31 |
Land account |
Dr |
|
200,000 |
|
|
December |
To Appreciation on land account |
|
|
|
200,000 |
|
|
(Being- value of land is increased) |
|
|
|
|
|
31 |
Vehicle account |
Dr |
|
50,000 |
|
|
December |
To Appreciation on vehicle account |
|
|
|
50,000 |
|
|
(Being- value of increased by Rs 400,000 – Rs 350,000) |
|
|
|
|
|
31 |
Machinery account |
Dr |
|
40,000 |
|
|
December |
To Appreciation on machinery account |
|
|
|
40,000 |
|
|
(Being- Due to depreciation method changed, |
|
|
|
|
|
|
value of machinery increased) |
|
|
|
|
|
|
|
|
|
|
|
#####
|
PROBLEMS AND ANSWERS |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Currency of your country
Basic Problem: 15A Depreciation
RK Company (P) Ltd has following transactions on 31st December:
Depreciation is charged on plant Rs 18,000.
Depreciation is charged on delivery van Rs 15,000.
Depreciation is charged on computers Rs 5,000.
Depreciation is charged on furniture Rs 40,000 life Rs 5 years.
Depreciation is charged on generator Rs 10,00,000 @ 5%
Required: Journal entries
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Currency of your country
Basic Problem: 15B Written-off or Amortization
RK Company (P) Ltd has following transactions on 31st December:
Write off preliminary expenses Rs 20,000.
Amortize underwriting commission Rs 10,000
Goodwill Rs 80,000 is written off during 5 years.
Required: Journal entries
[Answer: Goodwill written off = Rs 16,000]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Currency of your country
Basic Problem: 15C Appreciation
Following extracted data is given to you by BB Textile Ltd:
Value of land is increased by Rs 1,50,000.
Book value of motor bike Rs 65,000 revalued at Rs 67,000.
Due to depreciation method changed, value of machinery increased by Rs 20,000
Required: Journal entries
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