“Depreciation Accounting” (AS 6) (Revised)

The Accounting Standard regarding depreciation was issued at first in 1982. But it was
revised in 1994.
The revised standard (AS 6) is now mandatorily applicable to all concerns in India for
accounting periods commencing on or after 1.4.1995. The important matters to be noted from
(AS 6) are
1. “Depreciable Assets” are the assets which : -
(a) are expected to be used for more than one accounting period; and
(b) have limited useful life; and
(c) are held by an enterprise for use in production or supply of goods and services, for
rental to others or for administrative purposes but not for sale in the ordinary
course of business.
2. “Useful Life” of a depreciable asset may be either :
(a) the period of its expected working life, or
(b) the number of production or similar units expected to be obtained from the use of
the asset by the enterprise.

3. (a) The total amount to be depreciated from the value of a depreciable asset should be
spread over its useful life on a systematic basis.
(b) The method selected for charging depreciation should be consistently followed.
However, if situations demand (like change of statute, compliance with Accounting
Standard, etc.) a change of method may be made. In that case, the depreciation
should be recalculated under the new method with effect from the date of the asset
coming into use, that is, with retrospective effect.
If Depreciation is overcharged earlier, then the following adjustment entry should be made:
Asset A/c…….Dr.
To Profit & Loss Adjustment A/c
If Depreciation is undercharged earlier, then the following adjustment entry should
be made:
Profit & Loss Adjustment A/c…..Dr
To Asset A/c
(c) For ascertaining the useful life of a depreciable asset, these factors should be considered
:
(1) expected physical wear and tear;
(2) obsolescence; and
(3) legal or other limits on the use of the asset.
Useful lives of major depreciable assets may be reviewed periodically.
(d) Any addition or extension essential for an existing asset, should be depreciated
over the remaining life of the asset.
(e) If the historical cost of an asset changes due to exchange fluctuations, price adjustments,
etc. the depreciation on the revised unamortised depreciable amount should
be provided prospectively for the rest of the life of the asset.
(f) For any asset revalued, the provision for depreciation should be made on the
revalued amount for the remaining useful life of the asset.
(g) In the financial statements, the matters to be disclosed are
(1) The historical cost or any amount substituting it;
(2) Total depreciation for the period for each class of depreciable assets; and
(3) The related accumulated depreciation.
The method of charging depreciation should also be disclosed.