ASSETS n Anything of value owned or anything

ASSETS n. Anything of value owned or anything which will help the business to get cash or cash’s benefit in future is an asset.

Classification of Assets Fixed Assets Current Assets

Fixed Assets n Assets which will remain in the business for a long period of time. n These assets are acquired for carrying on the business operations and not to market these in the normal course of business. n These assets have longer useful economic life.

Current Assets n These are facilities or assets acquired with an intention of sale or conversion into finished goods to be marketed in the near future. n Current assets have relatively shorter life. These get converted into cash within a period of one year. n: stock of goods, debtors, cash in hand, cash at bank, etc.

Examples of fixed Assets

New Assets become old

Assets loose their value due: n Wear and tear: chemical reaction, weathering, intensity of use, care in handling, standard of maintenance.

Accidents

Depletion n It is the expired utility of wasting assets like mines, oil-wells. These assets lose their very existence, n when the oil or coal in mines comes to an end.

Exhaustion n Some assets such as animals and trees lose much of their value with the passage of time.

Obsolescence n. Due to new inventions , outdated assets may have to be scrapped even though they are capable of being used.

Depreciation n. The reduction in the value of an asset ncaused by its use n for the purpose of earning profit n is termed as depreciation. .

Methods of providing depreciation Methods Straight line method Written down method

Straight line method of calculation n DEPRECIATION: cost x rate 100 x Number of. months in use 12

For Example n For Eg: If cost of a machine is Rs. 50, 000 n Rate of depreciation 10%p. a . n Number of months used is 9 months

To calculate Depreciation look for the following Cost =50, 000 n Rate=10%p. a n Number of months in use=9 months n Depreciation = 50, 000 x 10 x 9 n 100 12 n = Rs 3750 n

Recording of depreciation journal entries On purchase of asset On charging depreciation at the end of accounting period Asset A/C Dr Cash A/C Depreciation A/C Asset A/C Dr

Example X Ltd, purchased furniture for Rs. 25, 000 on 1 st July 2006. The company provides depreciation at the rate 10% p. a. on straight line method. Give journal entries in the Books and show the Furniture Account from 2006 to 2008.

Calculation of Depreciation for 2006 n Depreciation 2006 : 25, 000 x 10 100 = Rs 1250 x 6 12

Calculation of Depreciation for 2007&2008 25, 000 = x 10 100 x 12 12 Rs. 2, 500

JOURNAL ENTRIES Date 1 -7 -06 particulars Furniture A/C Cash A/C Depreciation 31 -12 -06 31 -12 -07 31 -12 -08 Debit Dr 25, 000 A/C Dr 1250 Furniture A/C Depreciation A/C Furniture A/C Depreciation Credit A/C Furniture A/C Dr 2500

Furniture Acount Date 1. 07. 06 Particulars Cash A/C Amount Date Particulars 25, 000 31 -12 -06 Depreciation 1250 Balance C/D 23, 750 31 -12 -06 25, 000 1 -01 -07 Balance B/D 23, 750 31 -12 -07 23, 750 1 -01 -08 Balance B/D 21, 250 Amount Depreciation Balance C/D 2500 21, 250 23, 750

Furniture Acount Date 1. 07. 06 Particulars Cash A/C Amount Date Particulars 25, 000 31 -12 -06 Depreciation 1250 Balance C/D 23, 750 31 -12 -06 25, 000 1 -01 -07 Balance B/D 23, 750 31 -12 -07 By Depreciation By Cash By P& L A/C 23, 750 Amount 2500 20, 000 1, 250 23, 750

Furniture Acount Date 1. 07. 06 Particulars Cash A/C Amount 25, 000 Date Particulars 31 -12 -06 Depreciation 1250 Balance C/D 23, 750 31 -12 -06 25, 000 1 -01 -07 Balance B/D 23, 750 31 -12 -07 By Depreciation By Balance c/d 45, 000 Amount 2, 500 45, 000

Provision foe Depreciation account Under provision for depreciation account two accounts are maintained by the business. (1)Fixed asset account (2)Provision for depreciation account

Fixed Asset Account In this method the asset is shown at its original cost throughout its life and the depreciation on the asset is shown in a separate account called Provision for Depreciation account. Provision for depreciation account is also called as Accumulated Depreciation Account(Means an account showing total depreciation on the asset that is used)

Investing activity These are concerned with the purchase and sale of fixed assets of the business. • These includes purchase of fixed assets, goodwill and Long term investments cash outflows) • Sale of fixed, investments (cash inflows)

Calculate cash flows due to Investing Activity Particulars 2015 2016 Land & Building 10, 000 15, 000 Goodwill 7, 000 9, 000 Investment (long term) 5, 000 2, 000

Answer (Less)Purchase of Land & Building (Less) Purchase of Goodwill (Add) Sale of Investment Total cash used in Investing activity (5, 000) (2, 000) 3, 000 (4, 000)

Calculate cash flow from Investing activity Particulars 2015 2016 Land & Building 10, 000 15, 000 Goodwill 7, 000 9, 000 Investment 5, 000 2, 000 Additional information: Depreciation charged on Land & Building is Rs 2, 000

Land & Building account Particulars amount particulars To balance b/d 10, 000 By Depreciation A/C To cash a/c (B. fig) 7, 000 By Balance c/d 17, 000 Cash flow from investing activity: (Less)Purchase of land &Building (Less)Purchase of goodwill Add : Sale of Investment Cash used in Investing activity amount 2, 000 15, 000 17, 000 (7, 000) (2, 000) 3, 000 6, 000

Calculate cash from investing activity Particulars 2016 2017 Land & Buildings 15, 000 22, 000 goodwill 5, 000 3, 50, 000 Investment 5, 00, 000 Additional information: New building priced at Rs 10, 000 was purchased during the year.

Land & Building A/C Particulars Amount To Balance b/d 15, 000 To cash A/c 10, 000 Particulars Amount By Balance c/d 22, 000 25, 000 Cash Used in investing activity: (less )Purchase of fixed assets : (10, 000)