Tags |
|
|
Links |
|
|
E-Folder - Characteristics of Depreciation, Basic Factors of Determination of Depreciation
Characteristics of Depreciation
Depreciation has the following characteristics:
(1) Depreciation is charged in case of fixed assets only, e.g., Building, Plant and Machinery, Furniture 'etc. There is no question of depreciation in case of current assets-such as Stock, Debtors, Bills Receivable etc.
(2) Depreciation causes perpetual, gradual and continuous fall in the value of asset
(3) Depreciation occurs till the last day of the estimated working life of asset
(4) Depreciation occurs on account of use
Depreciation has the following characteristics:
(1) Depreciation is charged in case of fixed assets only, e.g., Building, Plant and Machinery, Furniture 'etc. There is no question of depreciation in case of current assets-such as Stock, Debtors, Bills Receivable etc.
(2) Depreciation causes perpetual, gradual and continuous fall in the value of asset
(3) Depreciation occurs till the last day of the estimated working life of asset
(4) Depreciation occurs on account of use
According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product
of asset In certain cases, however, depreciation may occur even if the assets are not used, e.g., Leasehold Property, Patent right, Copyright etc.
(5) Depreciation is a charge against revenue of an accounting period.
(6) Depreciation does not depend on fluctuations in market value of asset
(7) The amount of depreciation of an accounting year cannot be determined precisely-it has to be estimated. In certain cases, however, it may be ascertained exactly, e.g., Leasehold Property, Patent Right, Copyright etc.
(8) Total depr
(5) Depreciation is a charge against revenue of an accounting period.
(6) Depreciation does not depend on fluctuations in market value of asset
(7) The amount of depreciation of an accounting year cannot be determined precisely-it has to be estimated. In certain cases, however, it may be ascertained exactly, e.g., Leasehold Property, Patent Right, Copyright etc.
(8) Total depr
; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.
Examples of combination products may in
Examples of combination products may in
ciation of an asset cannot exceed its depreciable value (cost less scrap value).
Basic factors of determination of depreciation
(1) original cost of fixed asset i.e., purchase price plus freight and installation expenses;
(2) estimated amount of expenditure on repairs during the useful life;
(3) estimated useful life of asset after which it will be discarded;
(4) estimated residual or scrap value;
(5) interest on investment-the amount invested on purchase of asset, if it had been invested in some other
Basic factors of determination of depreciation
(1) original cost of fixed asset i.e., purchase price plus freight and installation expenses;
(2) estimated amount of expenditure on repairs during the useful life;
(3) estimated useful life of asset after which it will be discarded;
(4) estimated residual or scrap value;
(5) interest on investment-the amount invested on purchase of asset, if it had been invested in some other
lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.
investment what interest would have been earned;
(6) possibility of obsolescence.
Fixed Installment or Original Cost or Straight Line Method, reducing/Diminishing Balance method
Under this method depreciation is not calculated on cost of asset. It is computed on the book value. of asset. The book value of the asset is obtained by deducting depreciation from its cost. The book value of asset gradually reduces on account of depreciation charge. Since the depreciation percent rate is applied on reducing balance of asset. thi
(6) possibility of obsolescence.
Fixed Installment or Original Cost or Straight Line Method, reducing/Diminishing Balance method
Under this method depreciation is not calculated on cost of asset. It is computed on the book value. of asset. The book value of the asset is obtained by deducting depreciation from its cost. The book value of asset gradually reduces on account of depreciation charge. Since the depreciation percent rate is applied on reducing balance of asset. thi
here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe
s method is called reducing balance or diminishing installment method or written down value method.
Merits and demerits.
Declining balance method not only equitably matches depreciation expenses against the related revenue but also fairly spreads. the incidence of depreciation and repairs (viz higher depreciation but heavier repairs in later years.) on profit and loss account over the assets life span. Elimination of major portion of cost in early years also minimizes the impact of obsolescence. It is equally useful to man
Merits and demerits.
Declining balance method not only equitably matches depreciation expenses against the related revenue but also fairly spreads. the incidence of depreciation and repairs (viz higher depreciation but heavier repairs in later years.) on profit and loss account over the assets life span. Elimination of major portion of cost in early years also minimizes the impact of obsolescence. It is equally useful to man
d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.
Combination pro
Combination pro
gement as accelerated depreciation means smaller taxable profits and taxes hence lesser outflow of cash.
Accelerated Depreciation Methods
Sum-of-the year's digits (SYD). This method of depreciation accelerates depreciation expenses so that the amount recognized in the earlier periods of an asset's useful life are greater than those recognized in the latter periods. The SYD is found by estimating an asset's useful life in years, then assigning consecutive numbers to each year, and totaling these numbers. For n years, SYD
Accelerated Depreciation Methods
Sum-of-the year's digits (SYD). This method of depreciation accelerates depreciation expenses so that the amount recognized in the earlier periods of an asset's useful life are greater than those recognized in the latter periods. The SYD is found by estimating an asset's useful life in years, then assigning consecutive numbers to each year, and totaling these numbers. For n years, SYD
ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc
1 + 2 + 3 + 4 + ... +n
Annuity Method
The method recognizes the time value (Interest) of money and hence regards the real cost of using a long-lived asset equivalent to the actual amount invested thereon plus the interest lost on the acquisition of asset. Under this method, so much depreciation is written off each year as after debiting the asset account with interest upon the diminishing value, will reduce the asset to nil at the end of its life. Thus, the amount written off as depreciation is the same every year, but th
Annuity Method
The method recognizes the time value (Interest) of money and hence regards the real cost of using a long-lived asset equivalent to the actual amount invested thereon plus the interest lost on the acquisition of asset. Under this method, so much depreciation is written off each year as after debiting the asset account with interest upon the diminishing value, will reduce the asset to nil at the end of its life. Thus, the amount written off as depreciation is the same every year, but th
easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi
e interest will diminish each year.
The amount of annual depreciation to be written off by Annuity method will be ascertained from Annuity Tables
Depreciation Fund method or Sinking Fund method
Under this method, a fixed amount is charged as depreciation every year. It endeavors to provide the required lump sum cash at the retirement of a long, lived asset by annually setting aside and investing a fixed sum in readily realizable securities. These securities earn interest at fixed rate and the same being reinvested along w
The amount of annual depreciation to be written off by Annuity method will be ascertained from Annuity Tables
Depreciation Fund method or Sinking Fund method
Under this method, a fixed amount is charged as depreciation every year. It endeavors to provide the required lump sum cash at the retirement of a long, lived asset by annually setting aside and investing a fixed sum in readily realizable securities. These securities earn interest at fixed rate and the same being reinvested along w
nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically
th successive fixed installments of depreciation, allowed to accumulate at compound interest. The sinking fund method thus takes into account of this probable income from interest while fixing the annual depreciation and investing the same which together with compound interest accumulated to the asset's depreciable cost by the end of its useful life. Obviously, the fixed installment of annual depreciation is here smaller as compared to straight line method. Its magnitude, however, rests on the asset's life span and interest
and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ
ate. Longer the span and higher the rate, smaller is the annual depreciation per rupee of depreciable cost.
Shortcomings of Depreciation Fund Method
Depreciation fund method assumes constant rate of return on every periodic investment in identical securities. This is hardly true in this dynamic world where rates do vary now and then. Any variation in the rate of return upsets the earlier periodic allocation for depreciation and entails refection thereof. Further the amount realized on the sale of security rarely agrees wi
Shortcomings of Depreciation Fund Method
Depreciation fund method assumes constant rate of return on every periodic investment in identical securities. This is hardly true in this dynamic world where rates do vary now and then. Any variation in the rate of return upsets the earlier periodic allocation for depreciation and entails refection thereof. Further the amount realized on the sale of security rarely agrees wi
ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi
h its acquisition cost owing to made fluctuations which may be both erratic and considerable. Those may cause a wide gap between the required and supplied cash.
Insurance Policy Method
This method endeavors the supply of required cash at the retirement of a specified asset in return of periodic contribution (premium). Under this a trader takes a 'Capital Redemption Insurance Policy' from an insurance company which undertakes to pay at a given date a certain sum if the trader, paying a fixed number of premiums after regular
Insurance Policy Method
This method endeavors the supply of required cash at the retirement of a specified asset in return of periodic contribution (premium). Under this a trader takes a 'Capital Redemption Insurance Policy' from an insurance company which undertakes to pay at a given date a certain sum if the trader, paying a fixed number of premiums after regular
ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.
Following aspects would a
Following aspects would a
intervals. The trader treats the periodic payment as depreciation and charges it to profit and loss account. In this case, depreciation is charged at the end of the year, whereas, the premium is paid at the beginning of the year. At maturity, the insurance company pays the policy money which is normally sufficient to replace the retired set. Normally, amount received is more than total premium paid as the policy yields interest.
Revaluation Method
Under the system, each year the asset is valued and the value is compared w
Revaluation Method
Under the system, each year the asset is valued and the value is compared w
dd to the challenges in developing combination products:
Which markets to tap where the combination products can do fairly well?
Which combination prod
Which markets to tap where the combination products can do fairly well?
Which combination prod
th that in the beginning of the year. The fall is treated as depreciation. Suppose if the value of the tools at the beginning of the year was Rs. 8,000, during the year tools worth Rs. 6,000 were purchased and at the end of the year, on valuation these amounted to Rs. 11,000. The amount of depreciation for the year will be : 8,000 + 6,000-11,000 = Rs. 3,000 . This method is useful for charging depreciation on livestock and loose tools.
Depletion Method
Natural resources include physical assets like mineral deposits, oil an
Depletion Method
Natural resources include physical assets like mineral deposits, oil an
cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
gas resources and timber stands. These natural resources get exhausted by exploitation. In some cases, the reduction in physical deposits is offset by growth or development of additional deposits.
The cost of natural resources is the price paid for its acquisition plus price paid for development of such asset in order to bring it to a state suitable for production.
The periodic depletion is better not calculated in terms of year. Rather it is better to calculate the cost per unit and then multiply the cost of unit to unit
The cost of natural resources is the price paid for its acquisition plus price paid for development of such asset in order to bring it to a state suitable for production.
The periodic depletion is better not calculated in terms of year. Rather it is better to calculate the cost per unit and then multiply the cost of unit to unit
tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
s produced in that particular year.
Machine Hour Rate
Under this method, the total number of working hours of a machine during the whole of its effective life is estimated, and then the cost of machine is divided by the expected number of hours of useful life, this gives the rate per hour. The annual depreciation is calculatedly multiplying this rate by the number of hours, the machine actually runs in a year.
Mileage Method
This method is used only for those assets whose useful life depends upon the fact that how many k
Machine Hour Rate
Under this method, the total number of working hours of a machine during the whole of its effective life is estimated, and then the cost of machine is divided by the expected number of hours of useful life, this gives the rate per hour. The annual depreciation is calculatedly multiplying this rate by the number of hours, the machine actually runs in a year.
Mileage Method
This method is used only for those assets whose useful life depends upon the fact that how many k
t?
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
lometers they have been driven e.g. buses, cars, trucks and rolling stock etc.
Global Method
Under this method, the value of the assets, irrespective of their nature is added together and depreciation is charged at an average rate on aggregated value.
Choice of a Method
Aforesaid methods of depreciation reveal that none is absolutely best or worst as each method has its own merits and demerits. Suitability of every method is relative and depends upon various factors. Most important of these are the type of the asset and
Global Method
Under this method, the value of the assets, irrespective of their nature is added together and depreciation is charged at an average rate on aggregated value.
Choice of a Method
Aforesaid methods of depreciation reveal that none is absolutely best or worst as each method has its own merits and demerits. Suitability of every method is relative and depends upon various factors. Most important of these are the type of the asset and
ping new procedures for reviewing their safety, efficacy and quality.
Professional from academic institutions, pharmaceutical industries, health care indust
Professional from academic institutions, pharmaceutical industries, health care indust
urpose of depreciation.
Straight line method suits to buildings and lease etc.. reducing installment method fits to machinery equipment etc. and depletion method for wasting assets like mines. quarries etc. However, the underlying purpose is the basic determinants of the propriety of a depreciation method. Important purpose comprise of true reporting of accounts, tax benefits, comparative product cost, financial flexibility, replacement and expansion etc. For example. depreciation fund method envisages that the amount se
y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products
t aside for depreciation is to be invested outside the business in specific securities. Similarly under insurance policy method, the amount so set aside is handed over to insurance company. If a business is having working capital problems the advisability of these methods is questionable.
Of the above-mentioned methods (1) Fixed Installment and (2) Reducing Installment methods are most widely used.
Distinction between Fixed Installment Method and Reducing Installment Method
Fixed Installment Method
1. The rate and amount
Of the above-mentioned methods (1) Fixed Installment and (2) Reducing Installment methods are most widely used.
Distinction between Fixed Installment Method and Reducing Installment Method
Fixed Installment Method
1. The rate and amount
.
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
of depreciation remain the same each year.
2. Depreciation rate per cent is calculated on cost of asset each year.
3. At the end of its life the value of asset is reduced to zero or scrap value.
4. The older the asset, the larger the cost of its repairs. But the amount of depreciation remains the same each year. Hence, the total of depreciation and repairs increases every year. This reduces annual profit gradually.
5. Computation of depreciation comparatively easy and simple.
Reducing Installment Method
1. The rate rem
2. Depreciation rate per cent is calculated on cost of asset each year.
3. At the end of its life the value of asset is reduced to zero or scrap value.
4. The older the asset, the larger the cost of its repairs. But the amount of depreciation remains the same each year. Hence, the total of depreciation and repairs increases every year. This reduces annual profit gradually.
5. Computation of depreciation comparatively easy and simple.
Reducing Installment Method
1. The rate rem
elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.
Companies that provide selfless information through particip
Companies that provide selfless information through particip
ins the same, but the amount of depreciation diminishes gradually.
2. Depreciation rate percent is calculated on book value of asset.
3. The value of asset is never reduced to zero at the end of its life.
4. The amount of depreciation decreases gradually, while the cost of repairs increases. So the total of depreciation and repairs remains more or less the same each "year. Hence, it causes little or no change in annual profit/loss.
5. Depreciation can be computed without any difficulty, but it is not so easy and simple
2. Depreciation rate percent is calculated on book value of asset.
3. The value of asset is never reduced to zero at the end of its life.
4. The amount of depreciation decreases gradually, while the cost of repairs increases. So the total of depreciation and repairs remains more or less the same each "year. Hence, it causes little or no change in annual profit/loss.
5. Depreciation can be computed without any difficulty, but it is not so easy and simple
tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products
HTTP = HTML link (for blogs, profiles,phorums):
<a href="http://www.e-folder.org.ua/article/5269/e-folder-Characteristics-of-Depreciation-Basic-Factors-of-Determination-of-Depreciation.html">Characteristics of Depreciation, Basic Factors of Determination of Depreciation</a>
BB link (for phorums):
[url=http://www.e-folder.org.ua/article/5269/e-folder-Characteristics-of-Depreciation-Basic-Factors-of-Determination-of-Depreciation.html]Characteristics of Depreciation, Basic Factors of Determination of Depreciation[/url]
Related Articles:
Special Events and Corporate Meetings are Becoming Environmental
Debt Management Tips for Senior Citizens
Home Based Business Internet Style
Bookmark it:
|