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Notes/CA Foundation/Principles & Practice of Accounting

CA Foundation · Principles & Practice of Accounting

Depreciation Accounting

Chapter 3 · 4 formulas · 4 exam-critical pointers

Core concepts

  1. 01Depreciation: systematic allocation of depreciable amount of an asset over its useful life.
  2. 02Causes: wear and tear, obsolescence, efflux of time, accidents.
  3. 03Methods: Straight Line Method (SLM) and Written Down Value (WDV).
  4. 04AS-10 (PPE): depreciation reviewed at each year-end; useful life and residual value re-estimated.
  5. 05Change in method is a change in accounting estimate (prospective effect).

Flowchart summary

Cost of Asset | v Less: Residual Value | v Depreciable Amount | +---> SLM: equal per year +---> WDV: % on book value

Exam-critical pointers

  • ⭐Sinking fund method involves investment of annual provision outside the business.
  • ⭐Schedule II of Companies Act 2013 prescribes useful lives — not rates.
  • ⭐On revaluation upward: surplus to Revaluation Reserve; depreciation on revalued amount.
  • ⭐8-mark sum: Asset Disposal A/c with multiple purchases / part-year depreciation.

Make it click

Formula sheet

  • SLM Depreciation = (Cost − Residual Value) / Useful Life
  • WDV Rate = 1 − (Residual / Cost)^(1/n)
  • Book Value = Cost − Accumulated Depreciation
  • Profit/Loss on Sale = Sale Proceeds − Book Value on date of sale

More from Principles & Practice of Accounting

  1. Ch 1Theoretical Framework
  2. Ch 2Journal, Ledger and Trial Balance
  3. Ch 4Final Accounts of Sole Proprietors
  4. Ch 5Partnership Accounts
  5. Ch 6Company Accounts — Issue of Shares
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