NCERT Book Class 11 Accountancy Chapter 7 Depreciation, Provisions and Reserves

226 Accountancy

Depreciation, Provisions and Reserves 7

M atching principle requires that the revenue of
a given period is matched against the expenses
for the same period. This ensures ascertainment of
the correct amount of profit or loss. If some cost is
LEARNING OBJECTIVES incurred whose benefit extend to more than one
accounting period, it is not justified to charge the
After studying this chapter, entire cost as expense in the year in which it is
you will be able to :
incurred. In fact, such a cost must be spread over
• explain the meaning of the periods in which it provides benefits.
depreciation and
distinguish it from
Depreciation, on fixed assets, which is the main
amortisation and subject matter of the present chapter, deals with such
depletion; a situation. Further, it may not always be possible
• state the need for to ascertain with certainty the amount of some
charging depreciation particular expense. Recall the principle of
and identify its causes; conservatism (prudence) which requires that instead
• compute depreciation of ignoring such items of costs, adequate provision
using straight line and must be made and charged against profits of the
written down value current period. Moreover, a part of profit may be
methods;
retained in the business in the form of reserves to
• record transactions provide for growth, expansion or meeting certain
relating to depreciation
and disposition of
specific needs of the business in future. This chapter
assets; deals with two distinct topics and hence is being
• explain the meaning presented in two different sections. First section deals
and purpose of creating with depreciation and second section deals with
provisions and reserves; provisions and reserves.
• distinguish between
reserves and provisions;
SECTION – I
• explain the nature of
various types of 7.1 Depreciation
provisions and reserves
including secret reserve. Now you are aware that fixed assets are the assets
which are used in business for more than one