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Why is Depreciation Charged on Assets

Why is Depreciation Charged on Assets
What is meant by Depreciation? Depreciation means reduction in the value of a fixed asset used in the business due to #wear and tear and effluxion of time. #Internal and External Causes of depreciation: i. Wear and tear: Caused mainly due to constant use, erosion, rust etc. ii. #Efflux of time: Mere passage of time will cause a fall in the value of an asset, even if it is not used. iii. #Obsolescence: A new invention or change in fashion or a permanent change in demand may render the asset useless. iv. #Depletion: When raw materials or natural resources like mines, quarries and oil wells are extracted continuously, they deplete. v. #Accident: An asset may reduce in value because of meeting with an accident, like fire accidents. vi. Fall in the market price. What is the necessity for providing depreciation? According to International #Accounting Standard Committee (IASC) “Depreciation is the allocation of the depreciable amount of an asset over its estimated useful life. Depreciation for the accounting period is charged to income either directly or indirectly.” The #need for depreciation arises because of the following reasons: To ascertain the true profit of the business for a particular period To show the asset at its true value in the balance sheet To provide funds for replacement of the old asset with a new one Objectives of providing depreciation: To recover the cost incurred on fixed assets over its life To facilitate the purchase of new asset, when the old asset is disposed To find out the correct profit or loss for the particular period To find out correct financial position through balance sheet Factors to be considered while determining the amount of depreciation: I. The total cost of the asset including all #freight, #insurance and installation charges II. The estimated residual or scrap value at the end of its life III. Estimated number of years of its usefulness The term depreciation is concerned with charging the cost of fixed assets to operations. But the term depletion refers to the cost allocation for natural resources, whereas the term amortization relates cost allocation for intangible assets. What are the various methods for depreciation? Fixed installment or Straight line or Original cost method. Diminishing Balance Method or Written down value method or Reducing Installment method. Annuity Method. Depreciation fund method or #Sinking fund amortization fund method. Insurance policy method. Revaluation method. Sum of the year’s digits method (SYD). Double declining balance method. Depletion method.  Related Posts : How to Manage Working Capital? Short Term...
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Must See Personality Development Videos

Must See Personality Development Videos
 Know the secrets and tips to personality development, positive attitude and gaining unshakable confidence.  ...
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Top Five Reasons Why Strategic Plans Fail

Top Five Reasons Why Strategic Plans Fail
Why Strategic Plans Fail What are Strategic Action Plans? Action plans refer to definite actions that are related to either short- or longer-term strategic goals. Action plans should include details of resource commitments, allocation and time horizons for accomplishment. Action plan development represents the key stage in planning that facilitates effective communication of plans throughout the organization followed by resource planning and deployment. Action plans are also referred to as projects, strategies, tactics, or initiatives. Plans in paper may look more creative and feasible in nature; in reality it is a big quest unanswered. Are executives showing the same kind of enthusiasm in giving shape to the plans they charted out in paper? Most plans fail or do not give the expected optimum results and the reasons attributed may be listed out as follows: 1. Authority is delegated but Responsibility is forgotten: #Senior management executives are the STRATEGIC DECISION-BRAHMAS obviously but do they demonstrate what needs to be done? Demonstration is one of the powerful forms of communication and if the strategies are only to be communicated down the line and not to be followed by the senior officials how do you expect your team to perform efficiently? 2. Confusion between #strategy and Ideas: An idea is a conceptual construct about a particular thing. It is more abstract in nature. But when it comes to strategy, you need to have a solid FUTURISTIC action plan that is bound to give you the desired results in the long term. The elements essential for a good action plan are Availability of Resources (Men, Material and Money) Efficient #Resource Allocation to the various Strategic Business Units Proper Deployment Regular Follow-up until #accomplishment of goals Minor Modification of plans in accordance with the macro environment (legal, economic, financial etc.,) 3. Dis-Orientation of Senior Leaders: If a senior leader reaches that higher position through internal promotion, he loses touch with day-to-day activities though he has a strong contextual understanding of the business. If a senior #management leader happens to reach the top through external recruitment, it takes time for him to understand the business and the nature and needs of the organization. Only few leaders are capable of devising action plans that exactly nails the problem-situation (as we all know when an organization is looking for a turn around, the first blow is to the CEO of the organization). 4. Laissez Faire attitude doesn’t work out for strategic action plans: A senior leader has to monitor an action plan from the start till the end until the expected result is achieved. No strategy succeeds without a visionary in the background. The passion that a leader exudes is overwhelmingly infectious and motivates the team to complete a project. Here the leader is the initiator who is involved throughout strategic planning process so that momentum is sustained during the critical transition from planning to action. Follow ManagementGuru Net’s board Strategic Management – The Inevitable on Pinterest. 5. There might be one good goal but definitely no one good strategy: Understand strategies are subjected to change in accordance with the internal and external environment. Say, you have invested quite a good amount of money in shares of a particular reputed company and you come to know that there is a senior level management leadership change and feelers are that prices are likely to crash. What will you do?  Just being able to conceive bold new strategies is not enough. The management must also be able to translate its strategic vision into concrete steps that is “getting things...
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HRM Video Lecture 2

HRM Video Lecture 2
HR Startegy and Planning – HRM VIDEO 2 How are company strategy and HR strategy related? As part of an HR strategy which company functions should be of the highest priority? How to plan quantitative workforce demand on both strategic and operational level? Related Post: Fortune Favors the Brave: Ancient Lessons for Modern...
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HRM Video Lecture 1

HRM Video Lecture 1
Introduction to Human Resource Management – HRM VIDEO 1 What is Human Resource Management (HRM)? Which Megatrends determine future challenges in HRM? What are key fields of action in HRM? Related Posts: SEO Your Resume and Bypass...
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