Hello, we have come to end the remaining discussion of
depreciation accounting.
This is going to be the last lecture with you.
Conceptually, if we talk, then we will reach the journey of
teleprime.
As far as this topic depreciation is concerned.
I will also tell you how depreciation is calculated
according to income tax.
We are discussing accounts right now.
We will discuss this when we go to tele.
And how to tackle in audit report.
And what are the differences in them.
What is the treatment of that difference in income tax
return.
All these practical discussions will be done after today's
class.
Today, just for once, the remaining portion of accounting
should end.
The remaining things of accounting should be discussed more.
That's it.
What is left?
As you know, there are not many things left.
Revaluation remains.
And journal entries remain.
So starting with revaluation.
Let's try to fix the revaluation.
Revaluation.
Where are you hidden?
We suffer here.
I have come, I have come.
Revaluation has come in front of you.
Revaluation of property, plant and equipment.
PPE You have done a lot of decorations.
It seems that the topic is heavy.
It seems that the topic is just right.
Yes friend.
The topic should not be said well.
But it is important.
It is practical.
And It is important for you to know.
Important and practical.
What is the meaning of revaluation?
Come children, I will teach you the meaning of revaluation.
Sorry, the expression is wrong, sir.
I do not know the expression.
I was teaching accounting here.
You leave my expression and come to the concept.
Okay, sir.
Yes.
Look friend.
Like we bought a machinery.
How much money?
Today we bought 5 lakhs.
It's been a long time.
1 lakh 2 lakhs
Buying machinery.
Today we buy 5 lakhs of machinery.
Which day?
Should I tell you the date?
April 1, 2022
Its life has been kept.
5 years
Life has been told.
5 years
And 5 years later
Its SV
SV means
Who will tell me?
Sir, don't you want to say scrap value?
You are holding it right somewhere.
Scrap value, salvage value, residual value, fetch value.
All that used to happen.
Yes, yes, yes.
Means Means after 5 years
When this machine will become garbage.
By selling it in scrap
How much money will we get? 50,000 rupees
Yo 50,000 rupees
Let's go
So let's go 5 years ahead of this machinery.
Now we are 1 year
2 years
3 years
4 years
And 5 years 1st April 22 to 31st March 23 1st April 24 to
31st March
Sorry, sorry, sorry, sorry
Sir, pay more attention to singing.
You are right.
1st April 23 to 31st March 24 1st April 24 to 31st March 25
1st April 25 to 31st March 26 1st April 26 to 31st March 27
OK 22, 23, 24, 25, 26, 27, 28
Yes It's been 5 years.
Friends Friends Tell me depreciation.
Brothers and sisters
Take out depreciation and tell me.
Sir, depreciation will be done.
Which method to apply, sir?
Now you recognize from the data.
I have made an example of which data?
What do you think?
Which method would I like to ask you?
Depreciation What do you say by looking at the data?
Your senses
Sir The answer has come from our senses.
You are talking about the straight line method.
I said right, right, right, right, right, right, right.
Depreciation will come out.
Net cost divided by life
And how does the net cost come?
Whatever you spent
Minus the scrap value from it.
So your net cost will come out.
That is, if you say 5 lakh minus 50,000, then the net cost
will be 4,50,000 rupees.
Divide by who? 5 How much is life? 500 Depreciation How
much? 90,000 rupees
Cool Cool sir, cool
Yeah Next year will also be the same.
This is the benefit of the straight line method.
Once you take out the depreciation, keep applying it in the
coming year.
Ok Means the amount remains the same.
Yeah Depreciation 90, 90, 90, 90 and 90,000
This is your depreciation.
Okay, okay
No problem
We did not see
Should not come
Sir, change the color of the pen.
Which color should I take?
Should I take the purple color?
Sir, you come to purple every time.
Dude, I have this, then sky blue, then dark blue, purple
and this pink is left.
As soon as I take pink, I get the feeling of a girl.
Hmm Come on, sir, take the blue one.
I took dark blue.
Now it's fine.
Friends, as soon as we put a depreciation of 90,000 on the
machine purchased for 5 lakhs.
We will put a depreciation of 90,000 after the first year.
So you can tell how much value will be left in the books.
How much value will be left in the books?
Book value
Look, when you buy a machine for 5 lakhs, then you will
debit the machinery account.
You will enter the machinery for 5 lakhs.
You will put the machinery in the account.
You will say that a machinery has come for 5 lakhs in our
account.
And on that 5 lakhs, you will enter the first day for 5
lakhs.
When a year will pass, then you will put a depreciation of
90,000.
And what will be the value left? 5 lakhs minus 90,000 is
equal to 4 lakhs 10,000.
4 lakhs 10,000
After that, what will be the book value next year?
Minus 90 more from this.
3 lakhs 20,000 rupees
Minus 90 more.
2 lakhs 30,000 rupees 2 lakhs 30,000 rupees
Minus 90 more.
1 lakh 40,000 rupees 1 lakh 40,000 rupees
Minus 90 more.
90,000 will be left.
50,000 And friends see now.
In the end, 50,000 should also be left.
In the end, the value of 50,000 should also be saved.
That's what we were saying from the beginning.
That the scrap value will remain 50 at the very end.
The life of the scrap has ended.
And 50,000 value is still visible in our books.
Because we had assumed this in the beginning.
We will sell it at 50 and be happy.
Okay sir.
Now listen to my next thing.
When you bought machinery,
Then show 5 lakh rupees in the machinery account.
How much money? 5 lakh rupees
Which highlighter will be right?
Yellow is fine.
5 lakh rupees
By the time it comes to 21, 23
What is the value of that machinery? 4, 10
By the time it comes to 21, 24
Its value is 3, 20
By the time it comes to 25 2, 30
By the time it comes to 26 1, 40 and by the time it comes
to 27
Only 50,000 are left.
So are you able to see?
Value is decreasing.
So this is a misunderstanding in the market.
Depreciation does not mean
Falling below the value of the asset.
5 to 4, 10 4, 10 to 3, 20 3, 20 to 2, 30 2, 30 to 1, 40 to
1, 40 to 50
Depreciation does not mean
Falling below the value of the asset.
Depreciation has an effect.
Falling below the value of the asset.
Depreciation means
Distributing the value of the asset.
And because of that,
The value that decreases every year
Because you depreciate a small portion
And send it to P&L
Because of that, the value that decreases
That is the effect of depreciation.
Not depreciation.
This is the confusion in the market.
People teach the effect of depreciation
As the meaning of depreciation.
Oh, okay, sir.
Okay, this is clear.
But sir, we were studying revaluation.
Explain that to us.
Yes, I am explaining that.
Our balance sheet
Every year a balance sheet is also made.
Yes, sir.
So the balance sheet will also be made for 5 years.
1 year 2 years 3 years 4 years 5 years
Baby, come down
Come down
Na na na na na na na na na na na na na
Say na na na na na na na na na na na na
You will have to remember the lyrics of this.
I will tell you everything then.
Okay, that's all I know now.
Baby, come down
I remember the whole lyrics and tell you.
Okay, sir, done.
In the balance sheet of the first year
Asset side
How much will the machinery show? 4,10,000 4,10,000 rupees
The second year will show
Machinery 3,20,000 rupees
The third year will show 2,30,000 The fourth year will show
1,40,000 What am I writing?
The fourth year will show 1,40,000 And the last year will
show
Machinery value
Let's take this 50,000 rupees
Okay? Yes, sir.
Now friends listen
What is revaluation?
Whatever I have written in front of you
4,10,000,3,20,000,2,30,000,1,40,000,50,000 What is this
book value?
What is this book value?
Means After removing depreciation from the cost price
Year after year
The value that remains
It is called book value.
What is book value? there is another meaning of book value
how much money is shown in the balance sheet that is also
called book value it is shown in the balance sheet at 410
so book value becomes 410 book value means what value is
shown in the balance sheet ok friends, book value and
market value both are same give me this answer book value
is equal to market value bv is equal to mv first tell me is
this true or is this false is this true or is this false
tell me
I will give you 10 seconds take your time and tell me is
book value equal to market value 10 9 8 7 6 5 4 3 2 3 2 1 0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 and our
asset is only 4 lakhs so there is a loss of 10,000 and
whose shoulder will the loss fall on? most of all the loss
falls on one person's shoulder whose name is P&L account he
is the one who suffers he is the one who carries everyone's
deeds on his shoulders
P&L account debit to machinery account machinery account
what would have happened if it had increased in the first
time? what would have happened if it had increased in the
first time? what would have happened if it had increased in
the first time? machinery account debit to P&L but what is
written here? to revaluation reserve to revaluation reserve
sir, I did not understand this you said that the debit
balance of the asset is there
I said okay if we are doing revaluation for the first time
and suppose we had taken 4 lakhs and 10,000 in our books
for example, we would have got to know the value of 4 lakhs
and 20,000 we would have to increase the value of our
machinery from 4 lakhs to 10,000 and sir, you said a while
ago you said a while ago that machinery is an asset if the
value of the asset increases, we will debit so machinery
account has been debited to 10,000 we understand this but
sir, this is a benefit and if you
the loss on the shoulders of P&L then you should credit the
benefit to P&L so here to P&L should come to revaluation
reserve what is this? if there is a loss, we call him no
one asks him for the benefit in sorrow, we leave him alone
and in happiness, we call him to cut the cake no, no, no, I
said it wrong in sorrow, we leave him alone and in
happiness, we call him to cut the cake this is wrong this
is wrong so why did the revaluation reserve come?
I will tell you the reason friends, your P&L is made like
this here it has debit and here it has credit debit has all
the expenses all the expenses and credit has all the income
all the incomes wait a second
so on the debit side all the expenses are written and on
the credit side all the incomes are written then what
happens? expenses are minused from the incomes and net
profit comes
on this net profit the owner has the right he can take it
home can run the expenses of his house can have fun can
give gift to his wife can pay fees to children can do
anything the owner has the right on this money he can take
it home now friends if you on the income side you will
write that our asset value has increased by 10,000
so your profit will also increase say yes or no say yes or
no because if the income will increase, the profit will
also increase you said my machinery value increased by
10,000 and the owner said okay so this time I will take a
little more money
I will take 10,000 more when the reality is that 10,000
rupees has not come in the business your value of books is
410 increased in books to 420 so did you get some money?
tell me one thing, did you get some money?
I am saying that I have a diary and my for example last
month's earning is 1 lakh rupees and I said yes
I zoomed it
I increased the value to 1.5 lakh so will I get 50,000?
means whatever we do in books, it will become reality which
serial was that?
Shakala's boom boom we don't have a pencil like that magic
pencil of Sanju whatever we write will become reality you
increased the value of machinery in books you didn't get
money yes sir yes sir that's why we don't record it here in
P&L we say the machinery of 410,000 which is coming in our
books we increase the market value to 420,000 by increasing
it to 10,000 so we say that if we sell this machinery
tomorrow next day, then we will get 420 we didn't get it
yet 10,000 extra we didn't get it
we will get it if we sell it we say that we will get it if
we sell the machinery this is the meaning of revaluation if
we sell it, then we will get this money we are not going to
sell it we are not going to sell it my dear friends ok ok
sir I understand what you said now we are not going to sell
it prudence also says that the moment you sell it then you
will get the profit when you sell it, then you will get the
money if you don't want to sell it if you don't want to
sell if you didn't sell it
you will not get money
Prudence says don't record expected income, record expected
losses.
If the value is going down, then you can record it.
This is the concept of Prudence.
But income cannot be recorded on expected basis.
That's why instead of writing it in P&L, we write it in a
new account, whose name is Revaluation Reserve.
10,000, 10,000.
Machinery Account Debit to Revaluation Reserve Account.
10,000, 10,000.
Okay, sir.
So if the value increases on the first evaluation, then the
entry will be Machinery Account Debit to Revaluation
Reserve.
And if the value decreases on the first evaluation, then
the entry will be P&L Account Debit to Machinery Account.
Okay, now let's move ahead.
Now let's move ahead.
Listen carefully to the following cases.
First time you did a revaluation, the value increased.
You entered Machinery to Revaluation.
Next year, again on doing the revaluation, if it increases
again, my dear friend, then you will enter this again.
Machinery Account Debit to Revaluation Reserve.
Absolutely right.
Suppose next time the value increases by 5,000, so you will
enter this again next year.
Machinery Account Debit to Revaluation Reserve.
5,000, 5,000.
Absolutely right, sir.
But, but, but, but, if the value decreases next year, what
if the next year the value is decreasing?
What if the value decreases next year?
For example, let's say the entry is 17,000.
Entry is 17,000.
So, sir, this is decided.
If the value of the asset decreases, then the asset account
will be credited.
Machinery Account will have to be credited with 17,000.
This is decided.
And sir, you said that at the time of entry,
P&L Account will be debited.
So, sir, P&L will be debited.
But no.
Debit P&L first.
First, use 10, 5, 15 in Revaluation Reserve.
If you need more than that, then call P&L.
Now P&L says, you have put all the increase in Revaluation
Reserve.
You are calling me at the time of decrease.
Okay, I will come first.
Use the entire Revaluation Reserve.
Use the entire Revaluation Reserve first.
After that, remember me if something is less.
So, to bear the loss of 17,000, first we will use the
Revaluation Reserve.
How much? 15,000.
Then we will call P&L.
With how much money?
With 2,000.
Then we will call P&L with 2,000.
So, the entry will be
Revaluation Reserve Account Debit 15,000.
P&L Account Debit 2,000.
To Machinery Account, 17,000.
In this way, this scenario will continue.
Now come to the second case.
For the first time, did Revaluation.
Value fell.
As soon as I bowed my head, it fell.
For the first time, did love.
Did not understand anything.
What to do?
Value fell.
P&L Account Debit to Machinery.
Next year, again the value fell.
Again the same entry.
P&L Account Debit to Machinery.
Again the same entry.
P&L Account Debit to Machinery.
Next year, the value fell by 5,000.
Next year also, you will pass this entry.
P&L Account Debit to Machinery.
5, 5.
But, but, but, but.
If it happens that after that the value increases.
After that the value increases.
So what will we do?
We will debit the Machinery Account.
And we will credit P&L Account.
How much?
As much as you have debited it.
As much as you have debited it till now.
In the first year, it decreased.
You debited it by 10,000.
In the second year, it decreased again.
You debited it by 5,000.
In the third year, it increased.
So what will you do?
First, you will credit P&L Account by 10,000 and 5,000,
15,000.
And the remaining 2,000 rupees, you will credit in
Revaluation Reserve.
And you will debit Machinery by 17,000.
It was the same here also.
In the first year, it increased.
Machinery Account, debit to Revaluation Reserve.
In the second year, it increased.
Machinery Account, debit to Revaluation Reserve.
In the third year, it decreased.
So Revaluation Reserve, debit.
P&L, debit to Machinery.
It will go on like this.
Sir, after the increase in the first year, if there is a
direct decrease, then also this will be the entry.
Revaluation Reserve, P&L to Machinery.
I am just saying that the amount of P&L you have used to
debit or credit, first reverse it.
Then bring Revaluation Reserve in between.
That's it.
Okay, sir.
So remember these entries.
If after the decrease in the first year, it increases in
the second year, then also this will be the entry.
Machinery to P&L to Revaluation Reserve.
For example, in the first year, it decreased by 10,000.
You made the entry.
P&L Account, debit to Machinery.
10,000, 10,000.
Next year, it increases by 12,000.
So in Machinery Account, we will debit 12,000.
In P&L, we will credit 10,000.
Till now, we have debited 10,000.
And then in Revaluation Reserve, we will credit the
remaining 2,000.
That's it, sir.
Yes.
That's it.
So friends, note this down and understand it.
This was the topic of revaluation of property, plant and
equipment.