Why is depreciation charged even in the year of loss?

Why is depreciation charged even in the year of loss?
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1 Answer

Answer :

Depreciation process does not depend on Profit/Loss, it is mandatory to charge depreciation as expense on Asset is distributed
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Related questions

Is depreciation charged to reduce profits or to reduce the value of asset during a financial year?

Description : Is depreciation charged to reduce profits or to reduce the value of asset during a financial year?

Last Answer : It is charged to reduce value of asset.

Why is depreciation charged by business, which makes losses?

Description : Why is depreciation charged by business, which makes losses?

Last Answer : If I hide Depreciation for showing higher profits even if organization is in loss, I may end up paying Tax too. Which will in fact reduce my margin for profit. It will be better to show depreciation and claim tax benefit.

Why depreciation is charged to an asset?

Description : Why depreciation is charged to an asset?

Last Answer : As per Accounting Standards, it is a good practice to show the capital expense every period i.e. period wise. Thus, profits will be evenly shared in each period.

Give journal entry for adjusting profit made due to change in method of depreciation.

Description : Give journal entry for adjusting profit made due to change in method of depreciation.

Last Answer : It can only be achieved by reducing rate of Dep retrospectively.

What is retrospective change in depreciation method?

Description : What is retrospective change in depreciation method?

Last Answer : It means change in accounting policy such that it was present from starting.

What is prospective change in depreciation method?

Description : What is prospective change in depreciation method?

Last Answer : Prospective Change means the effect of accounting estimate and new policy is from current date and in future entry.

Give equation for calculating depreciation under reducing balance method.

Description : Give equation for calculating depreciation under reducing balance method.

Last Answer : Dep per annum= (NBV- Salvage)*rate;

Give equation for calculating depreciation under straight-line method.

Description : Give equation for calculating depreciation under straight-line method.

Last Answer : Dep per annum= cost-salvage/useful life;

How does physical wear and tear result in depreciation?

Description : How does physical wear and tear result in depreciation?

Last Answer : Physical Wear/Tear tend to worn out the Asset decreasing its productivity over period. Thus, market value decrease for the asset.

What are the features of depreciation?

Description : What are the features of depreciation?

Last Answer : 3.1 Net Book value will decrease for asset. 3.2 Includes loss of value due to usage, obsolescence. 3.3 Continuing Process. 3.4 Must be deducted before calculation taxable profits, as this is an ... then taxable profit is 50000 - 10000 = 40000 INR. 3.5 Does not include any actual cash flows.

What are the different causes of depreciation?

Description : What are the different causes of depreciation?

Last Answer : Wear and Tear; as over a period if asset is utilized it will be damaged and repair may be needed.

What is depreciation?

Description : What is depreciation?

Last Answer : Defined as reduction in value/cost of asset in systematic Manner

What is scrap value?

Description : What is scrap value?

Last Answer : Also known as residual/salvage value. The value means below which depreciation cannot be applied or in simpler terms assets useful life is over.

Why fixed instalment method is also called as straight-line method?

Description : Why fixed instalment method is also called as straight-line method?

Last Answer : As name suggests the depreciation amount is same each period so it is called fixed installation/straight line.

What do you mean by obsolescence?

Description : What do you mean by obsolescence?

Last Answer : When new model for asset procured/installed earlier is released the previous asset market value decreases. This is Obsolescence.

In which case depletion of assets takes place?

Description : In which case depletion of assets takes place?

Last Answer : Just like depreciation, depletion is accounting concept popularly utilized for tangible objects like Mineral Gas, Timber etc. where wear/tear for asset is not there. In these cases the followinf formula is used:

What do you mean by exhaustion of an asset?

Description : What do you mean by exhaustion of an asset?

Last Answer : When useful life for asset is zero or Asset is fully depreciated.

Depreciation is always charged on __________ assets. 

Description : Depreciation is always charged on __________ assets. 

Last Answer : Depreciation is always charged on __________ assets. (a) Current (b) Fixed (c) Fictitious (d) Intangible

Under the Reducing Balance, method depreciation is charged on the original cost.

Description : Under the Reducing Balance, method depreciation is charged on the original cost.

Last Answer : State whether the following statement are True or False with reason : Under the Reducing ... method depreciation is charged on the original cost.

What is the rate of depreciation charged on Computer Software: a) 10% b) 60% c) 40% d) 15%

Description : What is the rate of depreciation charged on Computer Software: a) 10% b) 60% c) 40% d) 15%

Last Answer : b) 60%

Under the Income Tax Act 1961, Depreciation on machinery is charged on : a) Purchase Price of the machinery b) Market Price of the Machine c) Written Down value d) A or B which is less

Description : Under the Income Tax Act 1961, Depreciation on machinery is charged on : a) Purchase Price of the machinery b) Market Price of the Machine c) Written Down value d) A or B which is less

Last Answer : c) Written Down value

Depreciation under ICDS-V shall be charged in accordance with : a) Income Tax Act 1961 b) Companies Act 2013 c) Notified Rate –CBEC d) Straight line over the useful life

Description : Depreciation under ICDS-V shall be charged in accordance with : a) Income Tax Act 1961 b) Companies Act 2013 c) Notified Rate –CBEC d) Straight line over the useful life

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Which of the following is most likely to require special planning considerations related to asset valuation? a. Accelerated depreciation methods are used for amortizing the costs of factory equipment. b. The client has recently purchased an expensive copy machine. c. Assets costing less than P5,000 are expensed even when the expected life exceeds one year. d. Inventory is comprised of diamond rings.

Description : Which of the following is most likely to require special planning considerations related to asset valuation? a. Accelerated depreciation methods are used for amortizing the costs of factory equipment. b. ... even when the expected life exceeds one year. d. Inventory is comprised of diamond rings.

Last Answer : Inventory is comprised of diamond rings.

Ashwin purchased a second hand machine for Rs.1 lakh. Over the first year after its purchase. He incurred an expense of Rs.20000 in maintaining it. At the end of the first year he sold it for Rs.80000. Find his profit/loss percentage. If 25% of the total cost price (i.e., purchased price + expenses) is to be deducted on account of depreciation. a)12.5% profit b)12.5% loss c)11 1/9% profit d)11 1/9% loss

Description : Ashwin purchased a second hand machine for Rs.1 lakh. Over the first year after its purchase. He incurred an expense of Rs.20000 in maintaining it. At the end of the first year he sold it for Rs.80000. Find his ... account of depreciation. a)12.5% profit b)12.5% loss c)11 1/9% profit d)11 1/9% loss

Last Answer : d)11 1/9% loss 

The loss on the sale of old furniture is debited to– (A) profit & loss account (B) furniture account (C) trading account (D) depreciation account

Description : The loss on the sale of old furniture is debited to– (A) profit & loss account (B) furniture account (C) trading account (D) depreciation account

Last Answer : Answer: profit & loss account

Depreciation is loss in value of _______. (1) Final goods (2) Machinery (3) Capital stock (4) Stock of inventory

Description : Depreciation is loss in value of _______. (1) Final goods (2) Machinery (3) Capital stock (4) Stock of inventory

Last Answer : (2) Machinery Explanation: The term depreciation represents loss or diminution in the value of an asset consequent upon wear and tear, obsolescence, effluxion of time or permanent fall in market value ... furniture, vehicles, plant etc. The wear and tear is general but primary cause of depreciation.

Which of the following is not a component of depreciation cost? (A) Repairs and maintenance cost (B) Loss due to obsolescence of the equipment (C) Loss due to decrease in the demand of product (D) Loss due to accident/breakdown in the machinery

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Last Answer : (A) Repairs and maintenance cost

Depreciation (A) Costs (on annual basis) are constant when the straight line method is used for its determination (B) Is the unavoidable loss in the value of the plant, equipment and materials with lapse in time (C) Does figure in the calculation of income tax liability on cash flows from an investment (D) All (A), (B) and (C)

Description : Depreciation (A) Costs (on annual basis) are constant when the straight line method is used for its determination (B) Is the unavoidable loss in the value of the plant, equipment and materials with lapse in time ... income tax liability on cash flows from an investment (D) All (A), (B) and (C)

Last Answer : (D) All (A), (B) and (C)

Salaries Rs.20000,depreciation for the period is Rs.30000 other operating expenses are Rs.9000, net loss for the period is Rs.5000 fund generated from operation is------------------ a) Rs.25000 b) Rs.15000 c) Rs.35000 d) Rs.14000

Description : Salaries Rs.20000,depreciation for the period is Rs.30000 other operating expenses are Rs.9000, net loss for the period is Rs.5000 fund generated from operation is------------------ a) Rs.25000 b) Rs.15000 c) Rs.35000 d) Rs.14000

Last Answer : a) Rs.25000

At the balance sheet date, the balance on the Accumulated Provision for Depreciation Account is A) Transferred to Depreciation Account B) Transferred to the Asset Account C) Transferred to Profit and Loss Account D) Simply deducted from the asset in the Balance Sheet

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Last Answer : Answer: D

Depreciation is defined as A) destruction of a plant in a fire accident B) loss of equipment over time due to wear and tear C) closure of a plant due to labour trouble D) closure of a plant due to lockout

Description : Depreciation is defined as A) destruction of a plant in a fire accident B) loss of equipment over time due to wear and tear C) closure of a plant due to labour trouble D) closure of a plant due to lockout

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Depreciation is loss in value of ________ (1) Final goods (2) Machinery (3) Capital stock (4) Stock of inventory

Description : Depreciation is loss in value of ________ (1) Final goods (2) Machinery (3) Capital stock (4) Stock of inventory

Last Answer : Machinery

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What experimental evidence did Thomson use to his hypothesis that atoms are made up of even smaller charged particles?

Description : What experimental evidence did Thomson use to his hypothesis that atoms are made up of even smaller charged particles?

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Pick out the wrong statement. (A) In a batch reactor, which is exclusively used for liquid phase reactions; temperature pressure and composition may vary with time (B) In a semi-batch reactor, one reactant is charged batch wise, while the other reactant is fed continuously (C) In a continuous flow reactor, uniform concentration cannot be maintained throughout the vessel even in a well agitated system (D) In a continuous flow reactor, both the reactants and the products flow out continuously

Description : Pick out the wrong statement. (A) In a batch reactor, which is exclusively used for liquid phase reactions; temperature pressure and composition may vary with time (B) In a semi-batch reactor, ... system (D) In a continuous flow reactor, both the reactants and the products flow out continuously

Last Answer : (C) In a continuous flow reactor, uniform concentration cannot be maintained throughout the vessel even in a well agitated system

Cost of abnormal wastage is: (a) Charged to the product cost (b) Charged to the profit & loss account (c) charged partly to the product and partly profit & loss account (d) not charged at all.

Description : Cost of abnormal wastage is: (a) Charged to the product cost (b) Charged to the profit & loss account (c) charged partly to the product and partly profit & loss account (d) not charged at all.

Last Answer : (b) Charged to the profit & loss account

IAll direct & indirect expenses related to business are charged: a)Profit and loss account b)Trading account c)Trading account Profit and Loss account d)Directly to Balance sheet

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Last Answer : c)Trading account Profit and Loss account

which method almost always produces the most depreciation in the first year? -General Knowledge

Description : which method almost always produces the most depreciation in the first year? -General Knowledge

Last Answer : B. ​Double-declining-balance.

Under which method of depreciation does the number of depreciation change every year?

Description : Under which method of depreciation does the number of depreciation change every year?

Last Answer : Under which method of depreciation does the number of depreciation change every year?

Under which method of depreciation the amount of depreciation remains constant every year?

Description : Under which method of depreciation the amount of depreciation remains constant every year?

Last Answer : Under which method of depreciation the amount of depreciation remains constant every year?

Under the __________ system of depreciation, the amount of depreciation does not change from year to year. 

Description : Under the __________ system of depreciation, the amount of depreciation does not change from year to year. 

Last Answer : Under the __________ system of depreciation, the amount of depreciation does not change from year to year. ... (c) Depletion (d) Machine Hour Rate

In fixed instalment system the amount of depreciation is ____________ every year. 

Description : In fixed instalment system the amount of depreciation is ____________ every year. 

Last Answer : In fixed instalment system the amount of depreciation is ____________ every year. (a) constant (b) fluctuating (c) increased (d) decreased

The following data, relates to manufacturing company for the year 2006-07– Net Profit as per P & L A/c–Rs. 2,40,000; Depreciation–Rs. 80,000; Goodwill written-off– Rs. 40,000, Profit on Sale of Fixed Assets–Rs. 16,000, Proposed Dividend–Rs. 96,000. The fund from operation would be– (A) Rs. 4,40,000 (B) Rs. 4,00,000 (C) Rs. 6,40,000 (D) None of the above

Description : The following data, relates to manufacturing company for the year 2006-07- Net Profit as per P & L A/c-Rs. 2,40,000; Depreciation-Rs. 80,000; Goodwill written-off- Rs. 40,000, Profit on Sale of Fixed Assets-Rs. 16,000, ... ) Rs. 4,40,000 (B) Rs. 4,00,000 (C) Rs. 6,40,000 (D) None of the above

Last Answer : Answer: None of the above

The depreciation method which reduces the value of a machine by equal amount each year during the useful life is known as a) Estimated method b) constant percentage method c) compound interest method d) straight line method

Description : The depreciation method which reduces the value of a machine by equal amount each year during the useful life is known as a) Estimated method b) constant percentage method c) compound interest method d) straight line method

Last Answer : d) straight line method

The depreciation during the year 'n', in diminishing balance method of depreciation calculation, is calculated by multiplying a fixed percentage 'N' to the (A) Initial cost (B) Book value at the end of (n - 1)th year (C) Depreciation during the (n - 1)th year (D) Difference between initial cost and salvage value

Description : The depreciation during the year 'n', in diminishing balance method of depreciation calculation, is calculated by multiplying a fixed percentage 'N' to the (A) Initial cost (B) Book value at the end ... ) Depreciation during the (n - 1)th year (D) Difference between initial cost and salvage value

Last Answer : (B) Book value at the end of (n - 1)th year

'P' is the investment made on an equipment, 'S' is its salvage value and 'n is the life of the equipment in years. The depreciation for Rath year by the sum-of year’s digit method will be (A) (P - S)/n (B) 1 - (P/S)1/m (C) (m/n) (P - S) (D) [2 (n - m + 1)/n(n + 1)]. (P - S)

Description : 'P' is the investment made on an equipment, 'S' is its salvage value and 'n is the life of the equipment in years. The depreciation for Rath year by the sum-of year’s digit method will be (A) (P - S)/n (B) 1 - (P/S)1/m (C) (m/n) (P - S) (D) [2 (n - m + 1)/n(n + 1)]. (P - S)

Last Answer : D) [2 (n - m + 1)/n(n + 1)]. (P - S)

In declining balance method of depreciation calculation, the (A) Value of the asset decreases linearly with time (B) Annual cost of depreciation is same every year (C) Annual depreciation is the fixed percentage of the property value at the beginning of the particular year (D) None of these

Description : In declining balance method of depreciation calculation, the (A) Value of the asset decreases linearly with time (B) Annual cost of depreciation is same every year (C) Annual depreciation is the fixed percentage of the property value at the beginning of the particular year (D) None of these

Last Answer : (C) Annual depreciation is the fixed percentage of the property value at the beginning of the particular year