Hello friends, Namaste.
Sir, what have you brought today? Have you heard of
depreciation?
Sir, I have heard of it. I am a student of commerce
background.
We have been hating this topic, sir.
We are telling you honestly. We are telling you from our
heart.
We have never been able to make accounts of it.
And leave the accounts, sir. We have never understood the
meaning of depreciation.
Today, we are telling you from the depth of our hearts.
You don't even need to tell me. I know it myself.
And you are making 30 marks in your mind, right?
No, no. We know the meaning of depreciation.
It means depreciation in the value of an asset.
Who said that? Sir, they keep saying this.
You don't know. I don't know. We know everything.
So, should I tell them? You are wrong.
Today, you will be taught a lot of things about
depreciation.
Now, we have to deal with depreciation.
This topic is about to start.
Depreciation in today's date.
All your misconceptions will be cleared.
All the people who say that depreciation is depreciation in
the value of an asset.
The value of an asset is reduced due to depreciation.
That is called depreciation.
For their information, let me tell you.
They are on the wrong path.
They are riding on the wrong train.
They will not improve until the train takes them to the
wrong station.
That's why I have come.
I will turn the direction of that train.
And I will take you in the right direction.
Sir, thank you very much.
What kind of thanks?
Friend, this is our job.
This is our relationship.
This is a matter of love.
Where did the word thank you come from?
Okay, sir.
There is no need to get emotional.
Start the topic.
I said okay.
Let's start the topic.
Let's go with the topic.
Depreciation accounting.
What is the name of the topic?
Depreciation.
Sir, show us the notes of this topic.
See the meaning of depreciation.
It will take us a lot of time to understand this.
Straight line method.
Written down value method.
It all sounds familiar.
Journal entries.
Profit on selling.
Loss on selling the asset.
All those things.
Depreciation method.
What will happen if we change it in the future?
Revision of life.
You will see all these things.
You don't know what it is.
Revaluation.
And some important points.
A, B, C, D, E, F, G.
There are a total of 60 topics.
C, R, 7.
There are 60 topics.
A, B, C, D, E, F, G.
In these 7 topics, you will get information about
depreciation from A to Z.
Let me tell you this first.
And second thing.
Depreciation entries in teleprime are considered to be one
of the most important entries.
Remember this.
Every accountant, if he comes somewhere and gives up, then
he gets a little worried about the entry of depreciation.
He keeps the rest.
Purchase bill, sale bill.
If he doesn't even know that purchase and sale are debited,
then he rejects those things.
But when it comes to depreciation, it is not so easy to
move forward.
That's why conceptual discussion is very important.
We will also understand its concept in a complete way.
We will show the concept.
We will have a conceptual discussion.
We will discuss the whole concept with you.
After that, when I will have explained all these things to
you, when I will have told you the whole concept, then we
will come to teleprime.
Just like we spent time in BRS.
First, we understood the concept well.
Spent the whole time carefully.
Then we went to teleprime.
And did a lot of practice there.
In the same way, we will also do depreciation with us.
After taking full information, then we will go to teleprime.
Do you know what happens?
When we go to teleprime with full information, then our
chest becomes wide.
Our chest becomes 36 inches.
We think we know everything.
What to do now?
We have to learn commandee there.
Knowledge is completed.
Debit and credit.
We know everything.
Just have to learn command.
From where to enter?
Which key to press?
And what to do there?
So much work is left.
So we will do the same with depreciation.
What we did with BRS.
Very good.
Ok Sir.
So friends,
Do you know what is the biggest battle in depreciation
topic?
To learn depreciation accounting, the biggest battle is the
first point of this topic.
Meaning of depreciation and related terms.
Meaning of depreciation is the biggest battle in itself.
There is a lot of misconception in the market.
There is a lot of confusion about it.
And people who know it, they also don't know it completely.
They also know something else.
In my experience, 99% people are like this.
Either they are not aware of depreciation, or they are
aware of wrong meaning.
Only 1% people are like this, who are watching our classes,
who know the meaning of depreciation, which I am going to
tell.
Sir, what are you going to tell?
It will start in a while, and it will not end.
Then you will say,
Sir, this is the meaning of depreciation.
And after that,
After that,
I am saying, fight with a professional.
Fight with a professional.
If you have more information about depreciation, then I
will meet you here.
I will meet you here on this channel.
I will meet you here.
Okay? I am not going anywhere.
Okay, sir.
So, you will be given this much information.
If you handle depreciation well, then your boss will also
be very happy.
Because your boss is also from a commerce background.
And he knows that depreciation is the name of a twisted
pudding.
So, when he sees you in the office, you are handling
depreciation very well.
So, somewhere your impression is high.
He sees that a person is tackling a topic like depreciation.
He says, the child is knowledgeable.
He is a good child.
Don't let him go.
We will increase his salary next time.
We will get him to do a lot of work.
But we will also increase the money a little.
What else do you want?
Don't they forbid you to work?
You just want more money.
Okay, fine.
I am not saying that someone will increase your
depreciation.
But he will definitely give the idea to the boss that you
are no less than anyone.
You have a lot of good information.
You are a good player in accounts.
Let's go to the meaning of depreciation on notes.
Here is my dear friends.
Meaning of depreciation.
The people who challenge, the people who claim,
I am talking to you who are watching my class.
Whoever thinks that we know the meaning of depreciation,
they don't even know what depreciation is applied on.
Yes, sir.
We know.
It is applied on machinery, on buildings, on furniture.
This is what you have forgotten.
You have forgotten the names of the items, on which items
it is applied.
You don't know its exact characteristics.
How was it decided that depreciation will be applied on
buildings?
What was the base?
What was the criteria?
How was it decided that depreciation will be applied on
furniture and machinery?
What is the base?
What are the criteria?
Everything will be taught.
Tomorrow a new item will come out about which you will have
confusion that depreciation will be applied on it or not.
So what will be the basis to decide whether to apply
depreciation or not.
That basis should also be known.
Some rules should be known.
What are the rules?
That we can select on the basis of those rules that on
which item depreciation will be applied and on which it
will not be applied.
Everything will be taught to you.
Everything will be told.
Meaning of depreciation.
First of all, let's start reading out without any delay.
Meaning of depreciation.
First of all, let me scare you.
After reading out the whole definition,
I will scare you.
Depreciation is the allocation of net cost of a PPE over
its useful life so that accounting principles are followed.
Sir is telling honestly that a bouncer went over his head.
Sir, just like Shoaib Akhtar used to put a bouncer and the
game used to go over the head of many players, in the same
way, the definition of depreciation that a bouncer went
over our head.
I know this very well.
I know.
And even if someone connects a little bit, then the game is
in the air.
The keeper is going to take the catch and out.
Until you understand the meaning of depreciation well, you
will not be able to understand the meaning of number one,
net cost, PPE, and this useful life.
You will not be able to understand the meaning of these
three words until you know the meaning of depreciation well.
So, if you want to know the meaning of depreciation, then
first of all, PPE.
First of all, we will look at PPE.
Then net cost and then useful life.
And we will also discuss a little bit about the accounting
principle.
So, our focus will be on these four words.
PPE, useful life, net cost, and accounting principle.
I will explain these four words in detail to you.
After that, when we will be coming back, then you will feel
that this has become like the left nail of the left finger
of the left hand.
The definition of depreciation has now become a game of the
left hand for us.
Now there is no problem in it.
This will happen.
Okay.
So, now forget that we are learning the definition of
depreciation.
You will have to forget.
You will have to forget the definition that came to your
mind.
Forget it.
Forget the definition that you just read.
Now just keep in mind that
I am going to teach you what PPE is.
First of all, I will teach you what PPE is.
Then we will teach you what net cost is.
Net cost.
And then we will talk to you about useful life.
And during this time, some matching principles.
and we will discuss about the accounting principle then we
will return back to this definition then you will find that
you have understood everything so let's start to understand
the meaning of PPE friends, there is a full form of PPE
which is written in front of you property, plant and
equipment property, plant and equipment this is the full
form of PPE so fine sir, there will be three things in PPE
a property, a plant and an equipment no friends this is the
confusion number one this is a confusion people think that
PPE means property, plant and equipment these three things
come in it no, machinery can also come in PPE furniture can
also come in PPE building can also come in PPE any other
asset can also come in PPE
there are some specialties of PPE any item if one, two and
three fulfills these three conditions any item if fulfills
these three conditions satisfies any item then it will
become PPE even if it is some other item than property,
plant or equipment
even if it is some other item than property, plant or
equipment then also it will be considered as PPE it will be
dealt according to the definition of PPE
sir, why do we have to find out whether an item is PPE or
not because this thing is related to your depreciation
that's why we have to find out how is it related to
depreciation we will see in a while wait a minute, be
patient listen now, you know all those memes
okay who will become PPE
I have said everything don't get confused just think that
sir is talking about something related to PPE so we have to
focus on that Kadi, then second Kadi, then third Kadi we
will understand all three Kadi separately and then we will
add them as soon as we add them, we will understand
everything okay sir
PPE who will become PPE sir, you make a show
who will become a millionaire who will become PPE so in
order to become PPE you don't have to do anything you don't
have to answer any questions anyone can become PPE any item
of this world any article, any thing will become PPE if it
fulfills these three conditions remember, it is important
to fulfill all three conditions because there is a plus
sign in between that first condition, plus second, plus
third if all three conditions are fulfilled
then it will not become PPE any item is not like that if
any of these three conditions are fulfilled then we will
start calling it PPE no, until any item fulfills all three
conditions we will not call it PPE absolutely not all three
conditions which are those three conditions all three
conditions are present first condition that item should be
tangible in nature sir, I didn't understand
if we can touch that item it should be like this and if we
can see it, it should be like this that item should be
touchable and visible then it will fulfill the first
condition will fulfill the first condition what will be the
second condition then it will have to go through another
test to become PPE an item should be tangible that is, it
should be touchable and seeable this is the first condition
then that item asked
what will be the second condition held for use in the
business if that item is kept in business to be used not to
be sold to be used then the second condition will be
fulfilled to become PPE and then only the last condition
will be left that the useful life of that item is more than
12 months its validity is more than 12 months it is such an
item that will last more than a year which is among those
who last more than a year
when all these three conditions are fulfilled then the item
will be called PPE property plant and equipment why should
an item be called property plant and equipment what is its
relationship with depreciation will be understood in a
while ok sir sir give us some examples which items will
become PPE you already know some examples like machinery,
furniture, building let's weigh all three examples on the
scale now you had kept them red
since 11th grade that machinery, furniture and building are
subject to depreciation now I am explaining to you why
machinery is subject to depreciation why machinery is a PPE
actually PPE is subject to depreciation when any item will
become property plant and equipment then it will be subject
to depreciation why machinery, furniture and building are
subject to depreciation because they are fulfilling all
three conditions
let's say machinery can we touch it yes sir but sir there
is no electricity that is a different thing can we touch it
don't make scenarios sir if it is kept on the second floor
or if our height is short if the machine is a little higher
if we are not able to touch it don't think like this
that it is a thing that can be touched don't think like
this that we can't touch it we can't believe it now your
laptop is kept in front of you in which you are watching
class
I can't touch it so is it not touchable if I go there, can
I touch it absolutely don't think like this that we can't
believe it have you seen Japan
Akshay Kumar asks Govinda he says I don't believe it
I haven't seen it he says have you ever been to Japan he
says no don't think like this is it not touchable yes it is
plus what is the use of machinery in business we don't
bring it to sell we make things out of it we use that
machinery to make new products we sell those products
sir we use machinery in business we utilize it we keep it
safe in business we use it to make things we don't sell it
and expected to be used for more than 12 months yes the
life of machinery is more than 12 months does anyone doubt
this no sir, I don't think so the life of machinery is more
than 12 months ok if it is less if there is such machinery
if there is such machinery whose life is less than 12
months first tell me this sir it is very difficult to think
that's what I am saying buy an all out you have to change
the refill how many years does it take right so still if
there is such a machine whose life is less than 12 months
if the third doubt is not fulfilled then it will not become
PPE
if such a thing is coming ok sir but in 99% cases the life
of machinery will be more than 12 months so depreciation
will be applied look at the furniture does the furniture
fulfill these three conditions is the furniture tangible in
nature yes sir furniture is tangible in nature you can
touch the furniture you can see how much furniture is kept
here there are chairs, there is a table there is a sofa,
there are stools there is a stand
there is a camera there are sceneries here so we can touch
all the furniture you can see show us now the camera is
kept there now I go up and change the camera and show you I
will show you sometime else promise sir so that's touchable
and seeable furniture have I kept them here to sell or to
use will you sell
where will I put the camera where will I put the table
where will I put the laptop where will I put the writing
pad where will I put my diaries where will I put my
paperweight where will I put my glass and number 3 the life
of furniture is more than 12 months a stool, a plastic stool
I have bought a plastic stool more than 2 years the life of
furniture is more than 12 months if it is less then it will
not be made
but it will be made in most cases ok sir building is
tangible you can touch it
I can see the building
I can touch it
I am selling it
I am using it in business now you will not question when it
comes to building you will say that the life of the
building is more than 12 months absolutely right like this
now I give some more examples
now you tell me now you tell me now you tell me that this
will happen or not
PPE I give you an example there is a camera in front of me
there is a camera in front of me that camera will you say
PPE or not sir now don't say like this no
now you know the criteria now you know the criteria
Have you ever asked in 11th whether you have put deption on
camera? No.
In 11th or 12th, in MCQ, you would have asked whether you
have put deption on camera or not.
You would have thought that you have never seen it in books.
So, you would have put deption on camera and said no.
Because you don't have any criteria or basis.
You didn't have any basis to find out who gets depreciation
and who doesn't.
Now, I have given you a basis. Depreciation will be on PPE.
On property, plant and equipment.
Whatever item fulfills these three conditions, deption will
be applied on it.
So, I am asking you now.
After giving you a basis, I am asking you a question.
Tell me, dear children.
Will camera deption be applied or not?
Tell me.
Sir, we will think on the basis of these three conditions.
We will not shoot air.
Sir, camera is tangible.
We can touch it and see it too.
Very good.
Sir, you have kept it for use in business.
You are recording and selling it.
So, you are using it.
Don't you sell the camera to anyone?
No, not at all.
Okay, sir.
Sir, but tell me one thing.
After few years, new and updated camera with new latest
features will come in the market, sir.
Then you will sell it, sir.
Oh, brother.
That is a different scenario.
You have to see this.
When I bought this camera, what was my purpose?
Did I buy it to use it or to sell it?
You have to focus on the purpose.
When I bought this camera, what was my purpose?
Did I buy it to use it or to sell it?
You have to sell it in the end.
That is a different scenario.
Okay, sir.
And the life of this camera is more than 12 months.
Yes, sir.
It is more than 12 months.
Yes, it is more than 12 months.
I have it for more than 1.5 years.
Already.
Okay.
Okay, sir.
And I will not say that it runs well.
Why, sir?
Because I also believe in some superstitions.
Okay.
Sometimes I feel that if I say something good, it may go
wrong.
Immediately.
Okay, sir.
That is why I will not say.
It will go wrong.
Sir, don't feel bad.
It is better to stay quiet.
Okay, I will stay quiet.
So, the camera will also become your PPE.
You will get deption on the camera.
Okay, sir.
Sir, one more example.
One more example.
Projector.
It is on top.
Here is the projector, my friend.
Projector is tangible.
You can touch it.
You can see it.
Sir, touch it.
I will put it on the wall.
You will not be able to touch it.
If it comes down, will I be able to do it or not?
Can you see it or not?
Yes, I can see it.
That's it.
I have kept it to use.
Yes.
I run classes on it.
Live classes run on it.
Of course, it runs.
What is the benefit of a projector, sir?
Do you know what is the benefit of a projector?
I sat here like this.
I put a cable on the laptop.
I connected the camera in front and started recording.
And whatever I write on the laptop, it will flash through
this big screen here through the projector.
And all my audience sitting in front of me will see it.
And the camera and my laptop will also record it together.
So, recording plus face-to-face happens together with the
help of a projector.
Sir, this is a very useful thing.
Very useful.
That's why I have kept it in business to use.
And its life is more than 12 months.
Even I am saying that I have got a warranty of 18 months.
So, its life should be more than 12 months.
Okay, sir.
So, this is also done.
My next example.
Software.
My next example.
Software.
Sir, you have asked something dangerous this time.
Yes, that's why I have been explaining to you for so long.
Everything is in so much detail that I can ask something
dangerous.
That's why.
Will there be deption on software or not?
Sir, software.
Sir, first tell me this.
We saw in the 11th that there is something called fixed
assets.
Deption is applied on that.
So, is there any asset in our software?
Yes.
I have bought the software of Telly.
I do accounting of my clients in the software of Telly.
And then I earn money from there.
So, my software of Telly.
My software of Telly, my friend.
Tell me.
Is it an asset for me or not?
Of course, it is.
So, who says that software cannot be an asset?
It is absolutely an asset.
So, now weigh the software on these three criteria.
The software of Telly that I have bought.
Expected to be used for more than 12 months.
I am going from the bottom this time.
Yes.
It is used for years.
No doubt.
Held for use in the business.
Yes, I am doing business in that.
Tangible.
Can I touch the software of Telly?
My goodness.
Sir, it must be written on the screen of your laptop.
Telly Prime.
Put your finger there.
My finger will be on the screen of this laptop.
It will not be on Telly Prime.
How will I put it on Telly Prime?
I am putting my finger on Telly Prime.
It is not on Telly Prime.
Where is it?
It is here.
It is on this laptop.
I am putting my finger on the laptop screen here.
I understand what you are saying, sir.
I understand what you are saying.
So, it will not be able to satisfy one condition.
Software PPE will not be made.
I have bought a license for 5 years.
So, my expected life is more than 12 months.
I have kept it for use.
But I can't touch it.
That's why that software will not be made.
My dear friends.
PPE will not be made.
I will give you one more scenario.
Telly gives one more facility.
They say that if you want to buy our software for less than
12 months, then you will get it on rent.
For less than 12 months.
I bought it for 8 months.
I had work for 8 months.
So, is it expected to be used for more than 12 months?
No.
I have bought it for 8 months.
So, I will be able to use it for 8 months.
So, in such a case.
What is there in such a case?
Nothing.
The first condition.
The third one.
The lower condition.
This one also got beaten.
Still, that PPE will not be made.
I just want you to adopt the way of thinking.
You adopt the way of thinking.
Now, I am going to give you a very dangerous example.
Beyond this.
You will not be able to think.
What to answer and what not to answer.
Before that, I would like to show you something.
Show me, sir.
We are ready to see.
See this.
What is this?
This is calculator, sir.
You are holding it correctly.
This calculator is very helpful.
Sir, it has helped us a lot in professional life.
The children who are watching our classes in CSC or SCM.
The one who are doing inter-main article ship.
They have very good knowledge of its importance.
They know that it is their biggest companion.
Calculator.
He knows that his biggest partner is a Calculator.
Just tell me, will a Calculator become a PPE or not?
Sir, till now no one has asked us a question that whether
depreciation will be applied on a Calculator or not.
I am asking, two answers.
If a Calculator becomes a PPE, then depreciation will be
applied on a Calculator also in our books.
Depreciation will be applied on the cost of a Calculator
also.
If it becomes a PPE.
Let's see, whether a Calculator fulfills all three
conditions or not.
First condition, tangible.
Yes, see this.
I am able to touch it.
I am able to see it with my own eyes.
Beautiful, beautiful Calculator.
First condition is fulfilled. Yes.
Held for use in the business.
Do I sell it?
Is it kept for sale?
Is it my Calculator's shop?
No, sir.
Is it kept for use?
Yes.
A client comes.
How much is his bill?
I said, listen brother.
First, your income tax return.
After that, you have to pay late fees.
One, you have to pay your GST return.
After that, you have to work for ESIPF.
One, we had done GST registration for you.
All these add up to make so much money for you.
Okay, you are from my family.
So, I have deducted 10% from this.
Here you go.
Am I using it or not?
Yes.
It also helps in paying the client's fees.
Second, all my work is done on the Calculator.
As it is, we are teaching children.
So, we use the Calculator while asking questions.
Right? While teaching questions.
And, if we are teaching something in TELI, and the children
have some rate, then they need the Calculator.
So, we use the Calculator a lot in our business.
So, we have kept the Calculator for use.
Now, the most dangerous point is coming.
As far as Calculator is concerned.
Some people will agree with this, and some people will not
agree.
What is the matter, sir?
The matter is,
that you tell me, is the life of this Calculator more than
12 months or not?
Some people will agree, they will say, yes, it is more than
12 months.
Some people will disagree, they will say, no, it is not
more than 12 months.
The rest of the boys,
they know very well, that its life is more than 12 months.
They know very well how to use it.
So, you tell me, is its life more than 12 months or not?
Look, I will tell you from my experience.
I will tell you from my experience.
Honestly, I bought it for 100 rupees.
This Calculator,
whatever it is, most people have this.
Some people keep a bigger one than this.
I am not denying it.
But this is also sold a lot.
This is also sold a lot.
I bought this for 100 rupees.
Okay, sir.
And, this is more than 2 years old.
This is more than 2 years old.
Sir, are you telling this to make us understand, to make a
case, or are you telling the truth?
You are telling the truth.
This is more than 2 years old.
So, sir, it has fulfilled the third condition.
It has fulfilled the third condition.
Yes.
So, sir, there will be deption on the camera, there will be
deption on the projector, camera is also PPE, projector is
also PPE, software is not PPE, so, there will be no deption
on that.
But sir, according to the present situation,
Calculator has become PPE, and there will be depreciation
on Calculator as well.
But sir, we know the problem.
Calculator became PPE, and there will be deption on it.
All the conditions would be fulfilled.
But the price of Calculator, which I bought,
I bought it for 100 rupees.
Materiality is the principle of accounts.
Principle means Siddhant
Accounts have a Siddhant
It's name is Materiality Principle
The principle of accounts says
If the amount of any transaction is less
Then you can ignore some rules
Like The amount of this calculator is very less 100 Rupees
So even if it is PPA
If you don't want to put depreciation then it's fine
In depreciation
You have to go to Tally and do entries
Of depreciation
You have to transfer it in P&L
This is a very time consuming process
For this you need knowledge
So if you put depreciation
On a 100 Rupees item
And do so many investments
Of time, knowledge and skills
Then it's not feasible
Putting depreciation on a 100 Rupees item
And passing all the entries of depreciation
In that time
Some more effective work can be done
Keeping this in mind
This principle of accounts
Matching principle says
If the amount is less
Then even if you don't want to put depreciation
Then it's fine
That's why after completing all the three conditions
Even after P&P
There will be no depreciation
We will not put depreciation
Sir we have to waste our time
We have to put depreciation
We want to put depreciation
No one will stop you
No one has stopped you
They have given you an option
If you feel that your time is being wasted
Yes, if you want to waste your time
You have a lot of time
Even your accountant doesn't waste your time
So he thinks if I put depreciation on a 100 Rupees item
I will pass some entries
So you can do it, no one will stop you
No one will stop you
If it's a 100 Rupees item, will I put depreciation or not?
There is an option
If you want to put it, you can
Okay sir
So now you know
On which item depreciation will be applied or not
What is its criterion
First you have to check
Is it P&P or not
Discussion of depreciation will be for that
Accounting of depreciation will be for that item
Which item will become P&P
Which item will fulfill these three conditions
Discussion of depreciation will be for that
Okay sir
No doubt
Okay sir
Okay done
So now you know
This is the criterion
This is for practical life
Because these doubts come in practical life
Not in books
This is for practical life
If you fulfill all three conditions
And it becomes P&P
Still you get to see in office
Why are you not putting depreciation
So understand
Materiality principle came in between
He said it's a small amount
Sir for example
If you buy something for 1 lakh
And it fulfills all three conditions
Materiality says if the amount is small
If the amount is very small
If you want you can skip depreciation
Otherwise you can't
Okay sir
Okay
So I explained this to you
What is P&P
Why was it necessary to explain this
Discussion of depreciation will be for that item
Which item will become P&P
Okay sir
I am going to teach you net cost
Forget everything
Forget P&P
What does it say in ready picture
Forget KK Modi
Forget BK Modi
He is your new relative
When Salman Khan is making him mad
So I am telling you
Forget P&P
Just focus on net cost
Sir you are not making me mad
I am not making you mad
Sir touching
Come back
It is the net amount paid
Payable for
Purchase construction of a PPE
Ohohoho PPE If you are buying
If you are buying
If you are making
If you are constructing
The amount you pay
That is called
Net cost
For example
If you are buying machinery
The amount you have to pay
That is called net cost
To buy PPE
Or to make it
That is called net cost
Sir you are connecting dots
First we learned PPE
Now we are seeing net cost
Related to PPE
To buy furniture
The amount you spend
If you are constructing a building
The amount you spend
That is called net cost
If you are buying an item
Or making it
The amount you spend
That is called net cost
What all expenses
Can be incurred
I will tell you
For example we are going to buy machinery
Shall we go
We are going to buy machinery
Machinery is PPE
The amount we spend
To buy machinery
That is called net cost
You just have to know
What all we have to pay
To buy machinery
First we went to the shop
We went to the shop
We said
Your focus should be
What we are paying
That is net cost
We said show us a machine
We want to make a new product
We want to earn a lot of money
We want to be huge
Show us a machine
They showed us a few machines
We liked one
We asked the price
They said this machine is for 1 lakh
This is called basic purchase price
The base price
Of any PPE
Of any product
That is called basic purchase price
What does it say in the movie Sandwich
Govinda The police officer says
I will catch you
His wife says let's go
He says if he caught me
The shopkeeper asked for 1 lakh
Did we give?
No sir
We don't give 1 lakh
We give some discount
To survive in competition
The shopkeeper himself gives a discount
He knows we won't give a discount
That discount will be minus
You tell me
The discount you are getting
Should it be a part of your cost
We are learning net cost
The discount you are getting
Should it be a part of your net cost
You are paying it
How can it be a part of cost
You have mixed Punjabi, Haryanvi
And Urdu
I don't understand
What did I say
It was in Hindi
The accent was different
I hope you understood
The net purchase price is 90,000 rupees
Okay sir
No problem
The net purchase price
Not net cost
The net purchase price
Is the basic purchase price
After discount
The net purchase price
Then on this 90,000
He said, listen
You have to pay GST
When you buy something
You have to pay GST
We know it
When you buy something
You have to pay GST
He paid GST
For example
Let's take the rate of GST 5% GST has 4 rates
Let's take 5 5% for 90,000 4,500 We don't calculate GST
On the basic purchase price
We calculate GST
After discount
If you calculate GST
On 1,00,000
Then you have to pay GST
Let's say
You have 1,00,000
First you calculate GST 5%
You have to pay GST
After discount
If you calculate GST 5% You have to pay GST
On 1,00,000
If you are calculating GST 10% You will have to pay GST 10%
You have to pay GST 10% GST You have to pay GST
But This tax will be plus
When this tax will be
Non-refundable This GST
You are paying
If it is refundable
Then it won't be part of the cost
Tell me one thing
I bought a watch
I bought a smart watch
Ok sir
I bought a smart watch
I bought it from my cousin
Ok He took 4,500 rupees 4,500 rupees
And he is telling me
If you use it
And return it to me
I will refund your 4,500 rupees
I bought it for this purpose
So this fee became refundable for me
Should I call it my cost
No, I will get back my 4,500 rupees
I will give you a better example
If some of you live in hostels
If some of you live in hostels Either you live in a hostel
or you will go to a hostel to live.
Even if you don't go, listen to me.
When you go to a hostel, you have to pay the monthly rent
of the room.
But in the beginning, while taking the room, you have to
pay some security deposit.
Why is that security deposit given?
So that you don't break their bed, don't dance on it, don't
make pictures on the walls, don't put your favorite
person's photo on the walls, crush's photo on the walls,
don't run away with their things, don't steal the cupboard.
We don't do such things.
But they don't trust anyone.
The person who gives the stuff doesn't trust anyone.
He says that my stuff can be stolen by anyone.
It can be you or anyone else.
That's why you have to pay security deposit.
But yes, whenever you talk to the landlord, he always gives
you this option.
When you leave the room and keep the room in good
condition, when you leave the room, when you use the room
in good condition, then your security will be refunded to
you.
Your security will be refunded to you.
It is refundable.
So can it be considered as your deposit?
If it is refundable.
No.
If you are giving anything for now, but you will get it
back later, then it is not a part of your deposit.
It is not a part of the cost.
Similarly, if you are giving this GST of 4500 now, but you
will get it back tomorrow, then it will not come here.
GST will come here only when it is non-refundable.
Sir, how can I get GST back?
Can I get my deposited GST back?
Yes, you can.
Who gets it?
Businessmen get it.
If a businessman has taken GST certificate,
If a businessman has taken GST certificate, then a
businessman, while buying anything, while buying a machine,
he has the right to collect it from his customer.
When he will sell a product from that machine, then he can
collect GST from his customer and keep it in his pocket.
He can keep as much GST in his pocket as he paid for the
purchase.
Okay.
So, registered people in GST have the right to get GST
refunded? Yes.
If a person is registered in GST, then he has the right to
get GST back.
So, you can see.
If you are getting GST back, then don't make it a part of
your cost.
If the tax is non-refundable, then it will be a part of
your cost.
Okay, sir.
One more thing is added.
We haven't reached the net cost yet.
One more thing is added.
Directly attributable cost to bring PPE to its present
location and condition.
PPE means
Property, Plant and Equipment.
The item which fulfills those three conditions.
In addition, all the expenses of bringing PPE will be added
to the net cost. will be added to the net cost.
will be added to the net cost.
Okay.
Give me an example.
My dear friend's freight.
F-R-E-I-G-H-T Freight.
We bought machinery. We bought machinery from the
shopkeeper.
We have to carry and store the machinery.
There is no difference between carrying and storing.
We have to arrange a transporter.
We asked the transporter to take the machinery to our shop.
He said that he will charge us Rs.10,000.
Rs.10,000 is too much.
He said that he will charge Rs.1,500.
Okay, we'll give you Rs.1,500.
What is this cost?
This cost is related to PPE.
You don't have to buy a machine, nor do you have to make a
payment of 1500 rupees.
Directly attributable cost to bring PPE to its present
location and condition.
How much? 1500 rupees.
We spent this money to bring PPE to its current location,
i.e. to our godown.
We spent 1500 rupees to bring PPE to its current location,
i.e. to our godown.
Sir, now we have reached the net cost.
We haven't reached it yet, there are still some things left.
What? The cost of dismantling has to be added.
Sir, what is the cost of dismantling? I don't understand
anything.
The cost of dismantling has to be added if we want to reach
the net cost.
Let me give you an example.
Have you heard of oil rigs?
Sir, what are oil rigs?
Let me open Google and show you what oil rigs are.
I said, Google, show the kids oil rigs.
Google showed the kids oil rigs.
These are the oil rigs.
These are called oil rigs.
A rig means a machine that extracts oil.
These machines that extract oil from the bottom of the sea
are called oil rigs.
These machines that extract raw oil from the bottom of the
sea are called oil rigs.
These fit in the middle of the sea, my dear friends.
In the middle, in the sense, wherever there is oil at the
bottom of the sea, they are fitted there.
And you can see, look very carefully, like this image.
There are pipes coming out of them, like this.
There is a big tunnel here and it goes all the way down to
the seabed.
It is not stuck on water.
It is going all the way down to the bottom of the sea.
All the way down.
These oil rigs are established all the way down.
All the way down.
Okay, sir.
Their job is to extract oil, raw oil.
Do you know what happens now?
Apply those three conditions of PPE on the oil rig.
Let's assume that our job is to extract raw oil from the
sea.
We sell raw oil.
So we want to know whether the oil rigs of raw oil will be
deprecated or not.
Does it come under the definition of PPE or not?
We want to see this.
Let's see.
First of all, is it tangible or not?
Sir, who will go to the sea to touch them?
Again the same thing.
Can you see?
Yes.
If we reach there, will we be able to touch them or not?
It is not that we have to touch them.
Can we touch them or not?
Yes, we can.
Okay.
After that, after that, after that, after that, after that.
Are they being kept for use?
Yes, they are not being sold.
Sir, we will extract raw oil from them and sell it for use.
Their life?
Leave 12 months, I don't know how many years their life is.
There is a lot of life.
Sir, have they become PPE?
Yes, they have become PPE.
Will they be deprecated?
Yes.
Sir, we will have to extract their net cost somewhere.
We will have to extract it.
So while extracting their net cost, what will we do?
Now let's come back to the pad.
While extracting their net cost, friends, we will take the
basic purchase price.
Suppose this is an oil rig.
We bought it for 1 lakh.
Okay.
The other party gave a 10% discount of 10,000.
So the net purchase price of this oil rig is 90,000.
However, do not have this misconception in your heart that
you get it for 1 lakh.
You get it for 1 lakh.
It is worth millions.
Millions.
These oil rigs are made very well in Germany.
Okay.
In Germany or France?
It is not confirmed.
Google it once.
Okay.
Say later that sir said Germany.
This is something else.
Okay.
Then we added non-refundable tax 4.5.
We added that too.
Then we picked up the oil rig and got it installed there.
Got it extracted.
What will be the cost of freight and installation there?
Directly attributable cost will be made.
To reach the existing location of the oil rig, the cost of
installation and freight will be made.
We paid 1500 rupees for that.
And we have to add one more thing to this.
We have to add one more thing to this.
4000 rupees cost of dismantling.
Now what is this?
I will tell you.
After a while,
from the bottom of the sea, where these oil rigs are
installed, all the raw oil will be absorbed.
And there will be nothing left on the bottom of the sea.
After a while.
So this machine will be removed from there.
What will this oil rig do while kept there?
It will get stuck in the water.
What else will be the benefit? Remove it from the sea.
The work was done.
As much oil as was to be removed, it was removed.
Then remove it from there.
Then we will remove it.
After removing, my dear friends, as soon as the oil rig is
removed from the sea, then the oil rig throws a lot of
garbage.
On the seabed, on the bottom of the sea.
It throws a lot of garbage.
All the bad things from the raw oil, it takes it to the
seabed.
As soon as we remove the oil rig from there.
Oh, oh, oh.
This is the thing.
Yes, this is the thing.
So the Indian government says, that look, whoever will
install the oil rig machine and work to remove the raw oil
from the sea, when they remove that machine from there
tomorrow, then all the garbage collected on the bottom of
the sea, clean that garbage and come there.
Otherwise, the sea will be very dirty.
We also have to take care of some nature.
Clean it from the sea and come from there.
This is called, the expense in that cleanliness, that came
to Rs.
The expense of this Rs. 4000 is called the cost of
dismantling.
Dismantling means, when you remove the thing that is
installed and take it back, that is called dismantling.
Have you seen the movie Robot?
At the end, when Rajinikanth gets angry at his Chitti
Robot, then what does he say?
I will dismantle you.
That means, I will break you and finish you.
I will finish you back.
As soon as the machinery is dismantled, all the networks
that are installed, they will be taken back from there. The
expense in that, and then the sea bed below, the cost of
dismantling will be included in your net cost calculation
because you don't have to buy an oil rig and you don't have
to spend money on it so the cost of dismantling will be
included in the cost of the oil rig
this is the principle
so sir, now we have reached the cost of PPE or you haven't
reached yet?
now you have reached but you haven't reached yet
if you have an item in your office that you think you have
to dismantle and you have to spend money on it, then you
can take it at the cost of PPE
so should we do it now or not?
have you reached the net cost?
you haven't reached yet
now you have reached the cost of PPE
sir, now I don't want to go, you are going too far
sir, now I will take you there
now this is the last step
now if you have come this far, then take one more step
ahead of me
remember the dialogue from the movie Dhadkan
one more step, Dev
one more step we have reached the cost of PPE
now we have to reach the net cost of PPE
if you reduce one thing from the cost of PPE
then you will reach the net cost
which thing do you want to reduce sir?
scrap venue
friends, how much have you spent so far?
sir, 90,000 plus 4.5 plus 1,500 plus 4,000
check with a calculator called PPE
90
how much is it?
plus 4,500 plus 1,500 plus 4,000 sir, it has become 1,00,000
till now you have spent 1,00,000 from your pocket
but
tomorrow when your machine will become garbage
by selling it in that garbage
you will recover 7,000 rupees from there
this is the assumption
scrap value means
when the machine will become garbage
by selling it in the garbage
how much money will you get?
so it is told to you
that there is a scrap value of 7,000 rupees so this cost
will be recovered from 1,00,000
when you have spent 1,00,000
to get this asset, this PPE
to reach this condition
but 7,000 will be recovered tomorrow
so it will be minus
it will not become a part of your cost
your net cost will be 93
like we do not include refundable taxes in the cost
similarly we do not include the scrap value
we also remove it
this money has to be got back tomorrow
so why will it become a part of your expense
cost is that which is in your pocket
you will get back 7,000
but where will it be in your pocket
so your net cost of PPE will be 93,000
93,000
ok sir
and he will make a bill for you
he will make a bill up to 1,00,000
from which you will buy PPE
he will make a bill up to 1,00,000
ok sir
in that you will adjust the scrap value
and the cost of dismantling
while doing your own accounting ok sir
the seller who is giving you the goods
he will not adjust your scrap value
and the cost of dismantling
so while doing your accounting
you have to look at your accountant
ok sir
so now we understand the meaning of net cost
so we took a PPE
what machinery
we took out its net cost
93,000
now I will tell you
now I will tell you one more thing
third thing
for example
what does it mean
it means
estimated useful life
that period is called
how long this machine will run
for example take 10 years
for example this machinery
which we bought in 93,000
it will run for 10 years
this oil rig which we bought in 93,000
its net cost is 93,000
it will run for 10 years
so this is its useful life what will it do for us
that PPE
so you understood PPE
you understood net cost
you understood useful life
now look at the principle of accounting
then you will understand the meaning of depreciation
now I will write here
you bought a machinery
a PPE
oil rig
its net cost is
93,000 and you purchased it today
on 1st April 2020
you are taking old date
take 22-23
current year
this is also going to end
how many days are left
2-4 days are left
from 1st April 2022
then its life will be told
that it will run for 10 years
1,2,3,4
I will do one thing
I will take 5 years
it will run for 5 years
so its estimated useful life is 5 years
no one can say
instead of 5, it will run for 4
or instead of 5, it will run for 6
no one can say like this
but there is an estimate
sorry
how much it will run in normal conditions
now you buy a mobile
so you say
it will run for 2-3 years
it is not exact
it can run more than 3
you can't say anything
so you bought on 1st April 2022
5 years from 1st April 2022
1st April 2022 will end on 31st March 2023
then from 1st April 2023 to
31st March 2024
then from 1st April 2024 to
31st March 2025
then from 1st April 2025 to
31st March 2026
and then from 1st April 2026 to
31st March 2027
I said you are absolutely right
when did you buy when did you buy
1st April 2022
when did you buy
on 22nd-23rd
so the expense of PPE
you are buying
you are paying 93
so the expense is there
so in which year are you incurring
sir on 22nd-23rd
in 22nd-23rd we are buying machinery
so we make a P&L account every year
do you know
yes sir we know next year
next year
third year
fourth year
fifth year
as long as business is running
P&L account will continue
in P&L account
there are two sides
one debit side one credit side
one debit side one credit side one debit side one credit
side one debit side one credit side debit side all
expenses, credit side all earnings then from earnings
expenses minus to check that profit is coming or loss is
coming ok, so friends now you guys use your brain and tell
you have spent in 22-23 of Rs.
93000 by buying goods and I am saying that I have spent, I
am not saying that whether you have paid or not, forget
that thing whether you have paid or not, take it out
because we don't do accounting on the basis of cash, we do
it on the basis of accrual accrual accounting says that you
bought the goods whether you are going to pay today or
tomorrow ignore that thing for accounting when you are
going to pay, ignore that for accounting you bought the
goods and took the expenses on your head or
you took the expenses, so that's it so in 22-23 you spent
Rs. 93000, whether you have paid or not, it won't make a
difference on my concept so forget that thing whether you
have paid or not ok sir, this Rs.
93000 expenditure, this is in 22-23 so now you guys will
say sir, in 22-23 P&L debit means expenses side should come
you guys will say this yes, you should say that if you want
to take out profit of 22-23, so in that you will take
income of 22-23, in P&L of 22-23 credit side and in P&L of
22-23 debit side, you will minus all the expenses in P&L of
22-23, you will take credit side income and in P&L of 22-23
debit side, you will minus all the expenses yes, so in P&L
of 22-23 debit side, you will
to take this expenditure also yes sir, but there is a
principle of accounts there is a principle of accounts
which is called matching principle for this thing, it is
strictly forbidden it says that Rs.
93000 will not come in P&L of this year sir, why it says
like this? what is its basis? why it says like this? who
told it to say like this? matching principle has a logic
matching principle says this expenditure of Rs.
93000 will be beneficial for 5 years instead of this, for 5
years instead of this, for 5 years so this expenditure of
Rs.
93000 should go on shoulders of
P&L of 5 years this expenditure is for 5 years so it should
be divided in 5 years friends, tell me one thing why it is
happening like this?
I will try to tell you this month, I got some fees from
children
I took admission of 5 children
I got Rs.
50,000 as per course of Rs.
10,000 and I am saying, this month
I got Rs.
50,000 my this month's earning is Rs.
50,000 instead of this, I have to teach them for 5 months
instead of this, I have to teach them for 5 months so this
month's earning is Rs.
10,000 10, 10, 10, 10, 10
I am getting Rs.
50,000 for 5 months means Rs.
10,000 for every month it is not that if I get it, then
entire earning will be of this month if I take Rs.
50,000 and tell my family that I have earned Rs.
50,000 and I will teach them for 5 months then what will
they say to me? you have taught them for 5 months so you
have earned Rs.
50,000 in 5 months and not in 1 month yes, I understand
I understand this is the same thing in the entire 12 months
suppose there is a sale of Rs.
1,00,000 we are selling someone a loan and the entire
year's sale is Rs.
1,00,000 in the last month of the year, he gave us Rs.
1,00,000 and we are saying we earned Rs.
1,00,000 in this month our package is Rs.
12,00,000 this is the same thing if Rs.
93,000 is spent for 5 years then it should be divided into
5 years means Rs.
Rs. 18,600 18,600, 18,600, 18,600 and 18,600 will go in 5
years P&L 93,000 has gone in P&L only has gone in debit
side only but not in 1 year P&L has gone in 5 years P&L
debit side 18,600 93,000 has become 5 pieces
I did this because of matching principal and yes, I feel
from my heart it is logical also sir matching principal is
right and friends and friends now listen that line for
which your ears are yearning for so long my mouth is
yearning to speak for so long now listen that line
PPE means machinery example oil rig net cost means 93,000
its life means in 5 years 18,600 will go in P&L this is
called depreciation this action is called depreciation what
have you studied depreciation in asset value
I don't care, I am teaching you right
I am teaching you exactly sir you tell me how is that wrong
tell us this also depreciation in asset value that is not
depreciation how is that wrong tell me one thing you must
have seen depreciation from straight line method like if
you are investing 1,00,000 in asset you are investing 10%
so every year you are investing 10,000 every year you will
spend 10,000 in the beginning when we buy a car we bring it
from showroom to road as soon as we bring it to road its
price goes down then it goes
slowly then in last year it goes down fast every year same
amount value goes down does it happen no so then so then
you have seen in your questions in straight line method
every year we are investing 10,000 20,000 fixed amount sir
we are investing different from WDV from written down value
method so what we are investing from straight line method
I am keeping that point there it is right ok sir ok so that
thing is wrong you are teaching wrong you will divide
93,500 in 5 years 18,600 that is depreciation ok sir that's
why we will name this 18,600 depreciation depreciation
depreciation depreciation depreciation depreciation
here it is now read what is depreciation what is
depreciation allocation of net cost of a PPE over its
useful life so that accounting principles are followed
means of a PPE of a machinery net cost means 93,000 in its
useful life allocating means distributing is called
depreciation on whose saying we do this accounting
principles on saying of accounting principles matching
principles we do this oh now you have understood meaning of
depreciation very well so friend
I said it took 1 hour we don't have any problem but for
lifetime you will remember meaning of depreciation for
lifetime you have understood depreciation on which item how
to check that adaption on this item what is the role of
materiality principle what is the role of non-refundable
taxes what is the cost of dismantling I have told you many
practical things while telling meaning of depreciation ok
we will meet in next class till then thank you bye bye and
take care