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METHODS OF DEPRECIATION

The amount of depreciation for the year is measured  using various methods out of which  two main methods for evaluating  depreciation are:
1. Fixed Percentage on Original Cost or Fixed Instalment or Straight Line Method; and
2. Fixed Percentage on Diminishing Balance or Reducing Instalment Method or Written-Down Value Method.
 Straight Line Method
Under this method, a suitable percentage of [...]

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METHODS OF RECORDING DEPRECIATION

In Books of account,depreciation is recorded by any of the two methods, a) when depreciation is charged to the assets account; and b) when provision depreciation/accumulated depreciation account is created.
The  two methods in detail are :
When Depreciation is Charged to Assets Account: Under this method, depreciation is directly charged to the Asset Account, provision for depreciation [...]

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FACTORS OR BASIS OF PROVIDING DEPRECIATION

Factors for evaluating the amount of depreciation are:
1. Original (Historical) Cost of the Asset: Cost will include all expenses incurred like freight and installation charges up to the point the asset is ready for use.
2. The Estimated Residual or Scrap Value at the End of its Life: Resident value is an estimated sale value of [...]

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Data Dictionary

A data dictionary contains a set of precise and accurate definitions of all DFDs, data elements and data structures.
The following rules are followed in constructing a data dictionary:
a) The terms used to describe data structures are always in capital letters.
b) Multiple word names are hyphenated.
c) Names assigned should be straight forward and user-oriented.
d) There should [...]

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Decision Tree

A decision tree is a graphical technique that presents conditions and actions sequentially and thus shows which condition to consider first and which one to consider next. It is also a method of showing the relationship of each condition and its permissible actions. A diagram is drawn that looks like a tree with branches, and [...]

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Questionnaire

Questionnaires are special-purpose documents that allow the  analysis to collect information and opinions from respondents. When it is impossible because of time, distance or cost constraint, to interview all the desired people involved in a system, then the analyst may consider the use of a questionnaire. This is a more structured and formal method of [...]

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Direct or Indirect Costs and Benefits

Direct costs are those costs that are directly associated with the system that are incurred in buying equipment, employing people, cost of consumable items, rent for accommodation etc.
Indirect costs are the result of operations that are not directly associated with a given system or activity. For example,heating or airconditioning, insurance and cost of maintenance etc. [...]

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Fixed or Variable Costs and Benefits

Costs that are constant and do not change are fixed costs. For example, rent to be paid is a fixed cost. Another example would be, if a company purchases computer hardware, the cost is fixed, whether or not it is wholly used to run a system.
Costs can also be variable. Variable costs are those that [...]

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Tangible and intangible Costs and Benefits

Tangible benefits means that benefit which is definite and can be determined in advance. Tangible cost means that it is known and can be estimated quite accurately. For example, the cost of salary of employees, the expense of specific piece of equipment, would be tangible cost.
 Intangible cost refers to something which we know exists, but [...]

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COST – BENEFIT ANALYSIS

Cost –benefit analysis is a tool for evaluating the effectiveness of the project. It may be used by the management to decide as to what extent benefits outweigh the costs. The costs associated with the proposed business system are the expenses arising from developing, installing, training and implementing the systems. The benefits are the advantages [...]

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OBJECTIVES OR NEED FOR PROVIDING DEPRECIATION

The need for providing considerable amount of depreciation over the useful life of an asset comes up  for the following purposes:
1. To Ascertain the Correct Profit or Loss: The first objective is to ascertain the correct profit or loss. If depreciation is ignored, the loss that is occurring (though not being paid for in cash) in respect [...]

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Accounting Concept of Depreciation

The accounting concept of depreciation refers  to distribute the cost of fixed assets over its presumed life in a reasonable manner. Annual depreciation in the value of assets can be charged to that accounting period. Annual  depreciation in the value of assets is  an expense which is due to use of assets in business functions and therefore, [...]

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Suspense Account

A Suspense Account is an account to which the difference in the Trial Balance is placed temporarily.  If the credit side is short, the Suspense Account will be credited and if the credit side is bigger, this account will be debited. With the inclusion of this account in the Trail Balance, the Trial Balance will [...]

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DEPRECIATION AND OTHER RELATED CONCEPTS

The terms depletion, obsolescence, amortization, etc are used interchangeably with depreciation. But, these terms are used in different contexts. Thus, let us understand the distinction between depreciation and such other related concepts.
1. Depreciation and Depletion: The term ‘depletion’ is used in respect of the extraction of natural resources like quarries, mines, etc that reduces the [...]

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Depreciation

Depreciation means a fall in the value of an asset because usage or with efflux of time or due to obsolescence or accident. Every fixed asset looses its value, once it is put to use. Let us consider some important definitions of depreciation. These are:
“The permanent and continuing diminution in the quality, quantity or value [...]

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