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what is difference between depriciation and depriciation
reserve ? how to treat depriciation in the books of accounts
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Answer Posted / h.r. sreepada bhagi
Depreciation is the amount charged off to the Profit & Loss
Account of a financial period over the life of a long-term
asset (Fixed or Capital Asset). The purpose is to spread the
cost of investment in an asset over the period of it's
useful life. Depreciation is charged at the rates and as per
the method specified in the applicable Statutory Law/s in
any country. It recognises the reduction in the value of an
asset due to passage of time, use, obsolescence, etc.
Depreciation is debited to the Profit & Loss of the
financial year and shown as deduction from the gross value
of the asset as at the end of that financial year.
Depreciation Reserve is the accumulated depreciation on all
the assets as at the end of a financial period. It's also
called Accumulated Depreciation ans shown a a deduction from
the gross value of Fixed Assets. Purpose of showing
depreciation reserve is to have accumulated reserve to
replace the assets when required.
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