Accounting Standards and Depreciation

Review of Previous Video

• Basic Topics of Accounting: Financial Information System

Introduction to Accounting Standards

• International Accounting Standards (IAS) and Indian Accounting Standards (InAS)
  • Both follow GAAP (Generally Accepted Accounting Principles)
  • Difference: IAS is referred to at the international level, whereas InAS at the Indian level

Cash Flow Statement

• Important to review two-three times for examination

List of Accounting Standards

• List from AS 1 to AS 32
  • List of AS till 15
  • List from AS 21 to 36

Depreciation

• Definition: Reduction in the value of a fixed asset
• Factories, furniture, etc., fixed assets degrade over time or become outdated due to technology

Important Points of Depreciation

• Cost of Asset: Price of the asset + transportation and installation costs
• Useful Life of Asset: Useful life of the asset as determined by the company
• Scrap Value: Amount receivable after the utility of the asset is exhausted
• Depreciable Value: Cost of the asset - scrap value

Depreciation Methods

1. Straight Line Method (SLM) or Fixed Installment Method
2. Declining Balance Method (DBM)
3. Units of Production Method (UPM)
4. Sum of the Years' Digits Method (SYD)

Numerical Example for SLM

• Example: Bottling Machine
• Useful Life: 5 years, Cost: ₹18000, Scrap Value: ₹8000
• Depreciation Rate: 20%

DBM Example

• Cost of Machine: ₹10000, Depreciation Rate: 20%
• Formula: Net Book Value x Depreciation Rate
• Calculate Depreciation for Multiple Years

UPM Example

• Depreciation Rate per Unit: (Cost - Residual Value) / Total Production Units
• Calculate Annual Depreciation

SYD Example

• Sum of Years: (5 years): 1+2+3+4+5 = 15
• Rate Calculation: Remaining Life/Sum of Years
• Apply for all years

Additional Important Topics

• Recoverable Amount: Higher of Fair Value and Usage Value
• Recognizable Loss: Fair Value - Carrying Amount