Class 11 Accountancy — Chapter 7: Depreciation, Provisions and Reserves

Chapter 7: Depreciation, Provisions and Reserves is a chapter in Class 11 Accountancy (Financial Accounting Part 1), part of the CBSE NCERT curriculum followed by over 25 million students across India. This chapter covers 10 topics including Meaning, Features and Causes of Depreciation, Distinction between Depreciation, Depletion, and Amortisation, Factors Affecting Depreciation Calculation. BrainWeave provides free AI-powered explanations — by voice or text, in Hindi or English — with no signup required.

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What you'll learn

▸Meaning, Features and Causes of DepreciationCore concept

DepreciationObsolescenceEffluxion of timeBook ValueNon-cash expense
▸Distinction between Depreciation, Depletion, and Amortisation

DepletionAmortisationNatural ResourcesIntangible AssetsTangible Assets
▸Factors Affecting Depreciation CalculationCore concept

Cost of AssetUseful LifeSalvage ValueScrap ValueDepreciable Amount
▸Straight Line Method (SLM) of DepreciationCore concept

Straight Line MethodSLMOriginal CostFixed InstalmentDepreciation Calculation
▸Written Down Value (WDV) Method of DepreciationCore concept

Written Down ValueWDVDiminishing BalanceReducing BalanceBook Value
▸Accounting for Depreciation and Disposal of AssetsCore concept

Journal EntryProvision for DepreciationAsset Disposal AccountProfit on SaleLoss on Sale
▸Concept of ProvisionsCore concept

ProvisionsCharge against profitPrudence PrincipleKnown LiabilityUncertain Amount
▸Concept of ReservesCore concept

ReservesAppropriation of profitRetained EarningsFinancial PositionGeneral Reserve
▸Distinction between Provisions and ReservesCore concept

Provision vs ReserveCharge vs AppropriationTaxable ProfitBalance SheetContingency
▸Types of Reserves

Revenue ReserveCapital ReserveSpecific ReserveGeneral ReserveSecret Reserve

Chapter Summary

Understand that depreciation is the systematic allocation of the cost of a tangible fixed asset over its useful life due to wear and tear, passage of time (effluxion), or obsolescence. Key features include it being a non-cash expense, a continuous process, and a charge against profit.

Differentiate between the three terms for value reduction. Depreciation applies to tangible fixed assets, Depletion to the exhaustion of natural resources (e.g., mines), and Amortisation to writing off intangible assets (e.g., patents, goodwill).

Identify and understand the three primary factors required to calculate the amount of depreciation: the total cost of the asset, its estimated useful life, and its estimated scrap or salvage value at the end of its useful life.

Learn to calculate depreciation using the Straight Line Method (also known as the Original Cost Method), where an equal amount of depreciation is charged to the Statement of Profit and Loss every year throughout the asset's useful life.

Learn to calculate depreciation using the Written Down Value Method (also known as the Diminishing Balance Method), where depreciation is charged at a fixed percentage on the book value of the asset, causing the depreciation amount to decrease each year.

Master the journal entries and ledger accounts for recording depreciation. This includes two methods: charging depreciation directly to the asset account or creating a 'Provision for Depreciation' (or 'Accumulated Depreciation') account. This also covers calculating and recording the profit or loss on the sale of a fixed asset.

Understand that a provision is a charge against profit made to account for a known liability or expense where the exact amount is uncertain. Its creation is based on the principle of prudence or conservatism.

Understand that a reserve is an appropriation of profit, not a charge. It is created to strengthen the financial position of the business, fund future growth, or meet unforeseen contingencies.

Clearly differentiate between provisions and reserves based on their nature (charge vs. appropriation), purpose, impact on taxable profits, and presentation in the balance sheet.

Classify different types of reserves, including Revenue Reserves (General and Specific) which are created from business profits, and Capital Reserves which arise from capital profits. Also, understand the concept of a Secret Reserve.

Practice Questions from this Chapter

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Calculate machine's depreciation rate. Get Solution →
Explain asset's useful life. Get Solution →
Compare straight-line and WDV methods. Get Solution →
What is the general meaning of 'Depreciation' as described in the chapter? Get Solution →
Which term is used for the process of writing-off the cost of intangible assets like patents and copyrights? Get Solution →
The term 'depletion' is used in the context of which type of assets? Get Solution →
According to the text, what are the two main methods for calculating the amount of depreciation? Get Solution →
What is a key feature of depreciation mentioned in the chapter? Get Solution →

Did you know?

💡 The Great Pyramid of Giza has been 'wearing out' for over 4,500 years.
💡 Your brand new car loses about 10% of its value the moment you drive it off the lot.
💡 Some ancient Roman roads are still in use today, proving extreme durability.
💡 The first cell phone in 1973 weighed over two pounds and cost nearly $4,000.
💡 Gold teeth from ancient Etruscans, over 2,500 years old, still hold their value.

Frequently Asked Questions

How many topics are covered in this chapter?

This chapter covers 10 key topics: Meaning, Features and Causes of Depreciation, Distinction between Depreciation, Depletion, and Amortisation, Factors Affecting Depreciation Calculation, Straight Line Method (SLM) of Depreciation, Written Down Value (WDV) Method of Depreciation, and more. The BrainWeave AI tutor explains each one with examples.

Is Chapter 7: Depreciation, Provisions and Reserves important for board exams?

Class 11 is a foundation year. Mastering this chapter now will help you build strong fundamentals for the higher classes.

Can I get NCERT solutions for this chapter in Hindi?

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Related Chapters

Chapter 6: Trial Balance and Rectification of Errors

Chapter 2: Theory Base of Accounting

Chapter 1: Introduction to Accounting

Chapter 3: Recording of Transactions-I

Chapter 4: Recording of Transactions-II

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