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CMA Foundation · Fundamentals of Financial and Cost Accounting · Depreciation (Straight Line and Diminishing Balance Methods)

Verma & Co. maintains a Provision for Depreciation account. At the year end, how is the Rs 30,000 depreciation on furniture recorded, and how does the furniture appear in the balance sheet?

Depreciation A/c is debited and Provision for Depreciation A/c is credited, with furniture continuing at original cost in the books. The balance sheet deducts the accumulated provision from cost to show the net book value of the furniture.

  1. ADepreciation A/c Dr, Furniture A/c Cr; furniture at reduced figure only
  2. BProvision for Depreciation A/c Dr, Depreciation A/c Cr; furniture at cost less nothing
  3. CDepreciation A/c Dr, Provision for Depreciation A/c Cr; furniture at original cost with the provision deductedCorrect
  4. DProfit and Loss A/c Dr, Furniture A/c Cr; furniture shown at cost

Explanation

When a provision account is used, the asset stays at original cost in the ledger. Depreciation is debited and the provision is credited. The balance sheet shows cost less accumulated provision. Crediting the asset directly belongs to the other method.

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