DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH

Name : Y. Yella Reddy

Designation : HCCP
Branch : DCCP
Institute : 026,S.G.Govt.Polytechnic,Adilabad
Year/Semester : III Semester
Subject : Accountancy-II
Subject Code : CCP-302
Topic : Depreciation
Duration : 50 Min.
Sub Topic : Fixed Installment Method.
Teaching Aids : Animations

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Recap:
In the last class we learned about the :
 Basic factors of Depreciation.

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Objectives:

On completion of this period you would be

able to know

 Procedure for calculation of Depreciation under

Fixed Instalment Method
 Advantages
 Disadvantages

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Fixed Instalment/Straight line
Method:

 A fixed percentage of depreciation is written off every

year
 The depreciation charged every year, remains the
same
 At the end of the working life of the machine, the
balance in the asset account will be zero or equals to
its residual or scrap value
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 Original Cost – Scrap Value
1. Depreciation = -------------------------------------------
Estimated life of the machine

2. Depreciation = Cost of asset X Rate of depreciation/100

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 Eg:
 Cost of the machine Rs.20,000 Scrap Value Rs.2000
 Estimated Life of the machine 10 yrs.
 Original Cost – Scrap Value
 Depreciation = -------------------------------------------
 Estimated life of the machine

 = 20000 – 2000 / 10= Rs. 1800

 Every year the provision made for Depreciation is
Rs.1800

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Suitability:
This method is suitable to
Patents
Short period Lease
Furniture
Plant & Machinery
Land and Buildings etc.

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Advantages:

 Simple and Easy to Calculate and Understand

 Suitable to the assets where working life can be

easily estimated

 Value of the asset can be written down to Zero or

Scrap Value
 Burden on Profit and loss A/c annually remains the
same
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Disadvantages:

 Difficult to estimate the life of certain assets like

Machinery
 Same amount of Depreciation is charged every year
irrespective of usage of the asset
 Depreciation remains the same while repair
charges go on increasing when the asset becomes
older

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Disadvantages contd.
 Ignores interest on the investment made for the
purchase of asset
 Difficult to calculate the depreciation on additions
made to the existing asset
 No provision is made for the replacement of asset

 This method is not recognized by the income tax

authorities in India

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Summary:

Calculation of Depreciation under Fixed

Installment Method.

Original Cost – Scrap Value

1. Depreciation =

Estimated life of the machine

2. Depreciation = Cost of asset X Rate of depreciation /100

Advantages.

Disadvantages. CCP02.24 11
Quiz:

• Under Fixed Installment Method the

Depreciation is

a) Uniform every year.

b) Changed year by year.

c) None.

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2. After estimated life of the asset it’s value will
be zero or scrap value.
a) Yes
b) No

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3. Fixed Installment method of depreciation is charged
on

a) Original Cost.

b) Written down cost.

c) Replacement Cost.

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Frequently Asked Questions:

1.What is fixed Installment system of Depreciation?

2. What is the formula for calculating Depreciation in

Fixed Installment Method?

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