Accounting for Natural Resources

What Are the Natural Resources? Natural resources are physical substances that when extracted from the ground are converted into inventory and when sold produce revenues for the firm. Natural resources include oil, natural gas, coal, iron, uranium, and timber. These assets are often referred to as wasting assets, because once they are removed from the … Read more

Disposal of Property, Plant or Equipment

Disposal of plant assets can occur through the retirement of discarded assets, sales, involuntary conversions, or trade-ins. No matter how the disposal is accomplished, the accounting procedures are quite similar. Depreciation must be recorded up to the date of disposal and, where appropriate, a gain or loss must be recorded on the disposal. These concepts … Read more

Comparison of Various Depreciation Methods

The below example compares the various depreciation methods. One of the most important points to note is that in all cases total depreciation expense over all 5 years is $36,000. As a consequence, the balance in the Accumulated Depreciation account at the end of the fifth year is also $36,000 in all cases. This shows … Read more

Accounting Concept of Depreciation

Depreciation is the most misunderstood accounting concept, and yet it is one of the most important. One of the best ways to understand the nature of depreciation is to explore what depreciation is not. The Nature of Depreciation Noncurrent, nonmonetary assets are purchased because they represent bundles of future benefits. All of these assets, with … Read more

Recommendations of Choksi Committee on Depreciation

1. Depreciation under the Income Tax Act does not merely a provision for charging against taxable profits the capital expenditure incurred by an undertaking on the depreciable asset over the useful lives of the assets, but it is also aimed at working as a tax incentive measure affecting the cash flow of business enterprises and … Read more

Reserves and Provisions

A business may like to provide for contingencies as per the concept of conservatism. These contingencies can broadly be classified into two categories: (i) Unforeseen contingencies i.e. contingencies of which the business is neither sure of their nature nor of their amounts e.g. amounts set apart for preventing reduction in dividend rate due to possible … Read more

Sinking Fund Method of Assets Depreciation

This method is known by different names such as Redemption Fund Method, Amortization Fund Method, Sinking Fund Method of Assets Depreciation. It requires the depreciation on the asset to be provided through a depreciation or Sinking Fund brought into being by accumulating thereon the amount of depreciation at a flat rate charged to the profit … Read more

Annuity Method of Assets Depreciation

Definition In the annuity method of assets depreciation, it is supposed that the money invested in the purchase of the asset earns interest at a fixed rate. This is debited to the asset account and, according to the annuity table, a certain fixed amount of depreciation is charged everywhere for the estimated useful life of … Read more