Today’s Topic – Describe Nature & Purpose of Providing Depreciation
Revision Series for IPCC audit
Dear IPCC Student,
Exams are approaching.
Time to revise is reducing.
Are you worrying about How to revise the whole syllabus in last 15 days?
We have a Solution-
You concentrate on the subjects which you consider vast to revise, & we’ll provide you the revision for Audit.
For these last 15 days, we’ll provide you one topic every day to revise & the manner in which you are required to write the answer.
If you want the discussion on any specific topic, you can mail us & we’ll provide you the tips for the same to revise & remember it fast.
For last hour revision of other topics & To revise the whole syllabus in just 5-6 hours, refer to the Book “Revision Series for IPCC - Audit, by CA Gunja Maheshwari”.
About the Book –
· Covers all points mentioned in the Syllabus as prescribed by ICAI
· Judicious use of Flowcharts for explaining the concept
· Easy language to understand, revise & remember the topic fast.
· Require only 5-6 hours to revise the whole Syllabus of Audit.
Today’s Topic –
Describe Nature & Purpose of Providing Depreciation (These are the exact extract from the Book ‘Revision Series for IPCC - Audit’)
(As now, you have got the idea of how to proceed to write the answer for different marks, we are now providing the extracts from the Book ‘Revision Series for IPCC - Audit’, which provides the complete answer in short form, so that you will be able to remember it fast instead of reading the whole lengthy answer. These are just the main points, in exam you are required to mention them in detail.)
1. Nature of Depreciation
Depreciation
Is
a measurement of loss of value
Of
a depreciable asset
Arising from use/ effluxion of time/ obsolescence of technology/ market changes
· It is to be charged in each accounting period during the expected useful life of asset
2. Purpose of providing depreciation
a. To keep capital intact – if depreciation had not been charged, the net income would have been overstated over the years of the life of the asset, and if the same was withdrawn or distributed as dividend, the business would have no funds for the replacement of the asset
b. To ascertain cost accuracy – it is a charge against revenue, to be included in profit & loss account and is required to calculate the cost of manufacture
c. To charge initial costs against earnings – depreciation is an expense incurred for earning profits and required to be charged against profits to ascertain correct amount of profit of the enterprise. It is a charge against profit & not an appropriation out of profits
d. To prepare true & fair statement – if depreciation is not charged properly, it will overstate the value of assets & profit
3. Depreciation on wasting assets
As per the opinion of the Company Law Board (now, National Company Law Tribunal), it is necessary to charge depreciation on wasting assets (like mines, quarries, etc) to arrive at the true & fair view of Balance Sheet and Profit & Loss Account
(If you remember the SA number or name than only mention, don’t mention the wrong number; in that case just mention the concept as according to the standards of auditing.
Firstly explain the meaning according the related Accounting Standard 6 on Depreciation, than explain the meaning in general and then give all the details regarding the topic.)
Best Wishes,
Revision Series for IPCC - Audit
Revision Series for IPCC audit
Dear IPCC Student,
Exams are approaching.
Time to revise is reducing.
Are you worrying about How to revise the whole syllabus in last 15 days?
We have a Solution-
You concentrate on the subjects which you consider vast to revise, & we’ll provide you the revision for Audit.
For these last 15 days, we’ll provide you few topics to revise & the manner in which you are required to write the answer.