Re maining Estimated Usefule Life lustration : Tom and Dick Commenced business on 1st January, 2015 when they purchased Plant and Eq 8,00,000. The decided to (i) charge depreciation at 10% p.a under straight Line me and (ii) charge fuell year's depreciation in case of acquisition of a new asset. 7 years Their of plant over the next years are as follows : 1st August, 2016 2nd September 2017 2,00,000 4,00,000 On 1st January, 2018 they decided to change method and rate of depreciation to 20% on diminishing balance basis with prospective effect. Prepare plant and Equipment Account for the year 2016 to 2018.

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Depreciation Methods

The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.

Depreciation Accounting

In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.