=>if the actual decrease in the value of assets happen, it is known as depreciation =>if we analyze with the books of accounts, the value of an assets decrease in the future, it is known as provision of depreciation
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If the actual decrease in the value of an assets happen, then it is known as depreciation but if we analyse with the books of accounts that the value of an assets decrease in the future, it is known as provision of depreciation. For eg if the value of an assets in 10000 INR and we had already made some provision for futre to decrease by 5% then in next financial year it shows only 9500 as value in the books of accounts but if the actual decrease in the value of an assets in 7% then actual depreciation is Rs 700 but provision made of only 500.
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Depreciation is an accounting method used in order to allocate the cost of tangible assets over their economic life (the time period that the asset is expected to assist in generating income for the business). The Economic life of assets can be reduced using the following ways.
•Wear and tear, degradation, or damage
•Obsolescence
•Changes in production capacity which reduce the output assets can deliver.
~Buildings, fixtures and fittings, machinery and office equipment, are common examples of assets depreciated to reflect the reduction in market value
Provision for Depreciation
~Provision for depreciation is the portion of depreciation for the accounting period. Depreciation is charged at the end of the accounting period, and this results in lowering of the asset value. However, this reduction is not accounted for by crediting the asset account, as the asset will be continued to show in its original value. Instead, these depreciation amounts are credited to an account named ‘Accumulated depreciation account’ which records the collective provisions for depreciation.
~At the time of the sale of the asset, the accumulated depreciation is debited, and the asset account is credited.
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Depreciation is gradual and permanent decrease in the value of an asset like plant and machinery or Furniture. This value is decreased according to given rates.
Provision is keeping aside a certain amount of money to deal with certain anticipated losses in the future.
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depreciation is estimated value we diduct from asset by period of time
provision for dep. is that we take some amount from us and make provision as when value of machine when goes zero then we
can brought new machine instead of that old machine or we can fulfill our losses if occur
provision for dep. is that we take some amount from us and make provision as when value of machine when goes zero then we
can brought new machine instead of that old machine or we can fulfill our losses if occur
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The?key difference?between depreciation and provision for depreciation is, while?depreciation is the method of allocating the cost of assets to compensate for their usage, provision for depreciation refers to the charge of depreciation for a specific accounting period.
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Depreciation is the loss in value of a fixed asset, whereas provision for depreciation is an anticipated loss in the value of an asset. ... The main part of the question here is provision vs allowance. They both mean the same thing, in this case. Both terms refer to the amount of money set aside for depreciation expenses.
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