AS-6 – Depreciation Accounting (Explained in Simple Words for Students)
Introduction (Let’s Start Very Simply)
When a business buys an asset like a machine, computer, furniture, or vehicle, it does not remain new forever.
With time, usage, and wear & tear, its value reduces.
This reduction in value is called Depreciation.
👉 Accounting Standard 6 (AS-6) tells us:
What is depreciation
Why it is charged
How it should be calculated
How it should be shown in accounts
This standard is extremely important for B.Com, CA Inter, CMA, and accounting beginners.
Why AS-6 Is Important (Student Logic)
Let’s think practically:
Assets help earn income
Cost of assets should be spread over years
Profit should not look artificially high
If depreciation is not charged:
Profit will be overstated
Asset value will be unrealistic
Financial statements will be misleading
👉 AS-6 ensures true profit and fair asset value.
Objective of AS-6 (In Clear Words)
The main objectives of AS-6 are:
To define depreciation clearly
To prescribe systematic allocation of asset cost
To ensure uniformity in depreciation accounting
To show true financial position
To avoid overstatement of profit and assets
Scope – Who Should Apply AS-6?
AS-6 applies to:
✅ All enterprises
✅ Tangible fixed assets
✅ Commercial, industrial & service businesses
❌ AS-6 Does NOT Apply To:
Land (no depreciation)
Intangible assets (covered under other standards)
Assets held for sale
What Is a Depreciable Asset? (Simple Definition)
A depreciable asset is an asset which:
Is expected to be used for more than one accounting period
Has limited useful life
Is used for business purposes
Examples:
Machinery
Furniture
Vehicles
Computers
Buildings
Key Terms You Must Understand
🔹 Depreciation
Systematic allocation of the cost of an asset over its useful life.
🔹 Useful Life
The period during which an asset is expected to be used by the enterprise.
🔹 Residual Value
Estimated scrap value at the end of asset life.
🔹 Depreciable Amount
Cost of asset – Residual value
Why Depreciation is Charged? (Conceptual Reasons)
| Reason | Explanation |
|---|---|
| Wear & tear | Due to usage |
| Passage of time | Asset becomes old |
| Obsolescence | Technology changes |
| Legal reasons | Legal life expires |
Methods of Depreciation (Very Important)
AS-6 allows any systematic method, but the most common are:
1️⃣ Straight Line Method (SLM)
Equal amount every year
Easy to calculate
Formula:
(Cost – Residual Value) / Useful Life
2️⃣ Written Down Value Method (WDV)
Depreciation on book value
Higher in early years
📊 Comparison Table: SLM vs WDV
| Basis | SLM | WDV |
|---|---|---|
| Depreciation | Equal | Reducing |
| Profit impact | Stable | Fluctuating |
| Asset value | Reduces evenly | Reduces fast initially |
Change in Method of Depreciation
AS-6 allows change only if:
It is required by statute
It improves financial reporting
📌 Effect of change should be:
Quantified
Disclosed clearly in accounts
Practical Example (Easy to Understand)
Cost of machine = ₹1,00,000
Residual value = ₹10,000
Useful life = 9 years
Depreciation per year (SLM):
(1,00,000 – 10,000) / 9 = ₹10,000
Journal Entries (Very Important for Students)
When depreciation is charged:
Depreciation A/c Dr
To Asset A/c
When depreciation is transferred to P&L:
Profit & Loss A/c Dr
To Depreciation A/c
Disclosure Requirements (AS-6)
Financial statements should disclose:
Depreciation method used
Total depreciation charged
Change in method (if any)
Effect of such change
Common Mistakes Students Make
❌ Charging depreciation on land
❌ Forgetting residual value
❌ Treating depreciation as cash expense
❌ Not disclosing method used
❌ Wrong journal entries
Exam-Oriented Points (Score Boosters)
Depreciation is a non-cash expense
It follows matching concept
Method should be consistent
Change in method is allowed with disclosure
AS-6 applies to tangible assets
FAQs (Student-Friendly)
Q1. Is depreciation compulsory?
Yes, for true profit and asset valuation.
Q2. Is depreciation a real loss?
No, it is a non-cash expense.
Q3. Can depreciation method be changed?
Yes, with justification and disclosure.
Q4. Is land depreciated?
No, land has unlimited life.
Conclusion (In Simple Words)
AS-6 ensures that asset cost is fairly spread over its useful life.
It protects users of financial statements from overstated profits and unrealistic asset values.
For students, AS-6 is:
Conceptually important
Practically useful
Highly scoring in exams
Mastering this standard builds a strong accounting foundation.
AS-5 Explained in Simple Words | Net Profit, Prior Period Items & Policy Changes
📌 Further Contact
If you have doubts in AS-6, journal entries, numerical, or exam preparation, feel free to reach out through the Contact page of this blog.
I’m happy to help students understand accounting in simple words.
⚠️ Disclaimer
This article is written purely for educational and learning purposes.
The explanations are simplified for students and should not be considered professional accounting advice.
For official definitions and exam answers, students are advised to refer to ICAI Accounting Standards, Study Material, and textbooks.
The author is not responsible for decisions taken based on this content.
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