Class 11 Accountancy Chapter 7 Depreciation, Provisions & Reserves Notes - FREE PDF Download
Depreciation Class 11 Notes explains key financial concepts depreciation, provisions, and reserves. Depreciation is the reduction in the value of assets over time due to use or ageing, helping to spread the cost of an asset across its useful life. Provisions are amounts set aside to cover expected future expenses, even if the exact details are not known. Reserves are funds saved from profits for future needs or unexpected events.
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Understanding the concepts in provision and reserve class 11 notes helps in keeping financial records accurate and managing finances effectively. By providing a summary and analysis, Vedantu makes it easier for students to see the lessons and ideas in the Class 11 Accountancy Revision Notes. Students can download the Depreciation, Provisions & Reserve Class 11 Notes PDF, making it simple to study and review whenever they need with the updated CBSE Accountancy Class 11 Syllabus.
FAQs on Depreciation, Provisions & Reserves Class 11 Notes: CBSE Accountancy Chapter 7
1. What is the core concept of depreciation for a quick revision of Class 11 Accountancy Chapter 7?
For a quick recap, depreciation is the systematic allocation of the cost of a tangible fixed asset over its estimated useful life. It represents the reduction in the asset's value due to factors like wear and tear from use, passage of time, or technological obsolescence. It is treated as a non-cash business expense.
2. What are the two main methods for calculating depreciation that I should focus on for revision?
The two primary methods to focus on in your revision notes are:
- Straight-Line Method (SLM): A constant amount of depreciation is charged every year throughout the asset's life. It is calculated on the original cost of the asset.
- Written Down Value (WDV) Method: Depreciation is calculated on the book value (or diminishing balance) of the asset each year. The amount of depreciation charged decreases over time.
3. How does the choice between the Straight-Line and Written Down Value method affect a company's profit and loss summary?
The choice of depreciation method significantly impacts reported profits over time. The Straight-Line Method (SLM) results in a uniform depreciation charge, leading to a stable and predictable impact on profits each year. In contrast, the Written Down Value (WDV) method leads to higher depreciation in the early years and lower charges later, resulting in lower reported profits initially, which gradually increase as the depreciation expense diminishes.
4. How can I quickly summarize the concepts of 'provisions' and 'reserves' from these notes?
For a simple summary:
- A Provision is an amount set aside to cover a known liability or an expected future expense, where the exact amount is not yet certain. It is a charge against profit.
- A Reserve is an amount set aside out of profits to strengthen the company's financial position or to fund future growth. It is an appropriation of profit.
5. What is the fundamental difference between a provision being a 'charge against profit' and a reserve being an 'appropriation of profit'?
This is a crucial concept for revision. A 'charge against profit' (like a provision) is a mandatory expense that must be deducted to calculate the true net profit or loss for a period. A business must account for it regardless of whether it makes a profit. An 'appropriation of profit' (like a reserve) is a discretionary distribution of profits after they have been calculated. It can only be created if the business has earned a profit.
6. What are some key examples of Provisions and Reserves to remember from the Chapter 7 notes?
Key examples to remember for your revision are:
- Examples of Provisions: Provision for Doubtful Debts, Provision for Taxation, Provision for Depreciation, and Provision for Repairs and Renewals.
- Examples of Reserves: General Reserve, Capital Reserve, Dividend Equalisation Reserve, and Debenture Redemption Reserve.
7. Why is a 'Capital Reserve' not available for distributing cash dividends to shareholders?
A Capital Reserve is created from capital profits (e.g., profit on sale of fixed assets or profit on revaluation), not from profits earned during normal business operations. According to accounting principles and legal requirements, these profits are not considered available for distribution as cash dividends. They are retained to strengthen the company's financial base or used for specific purposes like writing off capital losses or issuing bonus shares.
8. For revision purposes, where are provisions and reserves typically shown in a company's Balance Sheet?
In the Balance Sheet, as per the CBSE 2025-26 syllabus:
- Provisions are either shown as a deduction from the specific asset they relate to (e.g., Provision for Doubtful Debts deducted from Sundry Debtors) or on the liabilities side under 'Current Liabilities' or 'Non-Current Liabilities'.
- Reserves are always shown on the Equity and Liabilities side under the main head 'Shareholders' Funds' and sub-head 'Reserves and Surplus'.
9. What are the key factors that affect the amount of depreciation charged on an asset?
For a quick concept recap, the three main factors that determine the annual depreciation amount are:
- The total cost of the asset: This includes the purchase price plus any costs incurred to bring the asset to its usable condition, like installation and freight charges.
- The estimated useful life of the asset: This is the period over which the business expects to use the asset.
- The estimated scrap or residual value: This is the expected value of the asset at the end of its useful life.
10. How does a solid revision of Chapter 7 concepts build a foundation for more advanced accountancy topics?
Mastering these concepts is crucial for future learning. A strong understanding of depreciation is vital for asset management, taxation, and manufacturing accounts. Understanding provisions and reserves is fundamental to analysing a company's true financial health, its risk management strategies, and its dividend policies, which are critical concepts in Partnership Accounts, Company Accounts, and Financial Statement Analysis in Class 12 and beyond.
