Depreciation Provisions and Reserves Test - 3

It is reduction in the value of an asset due to wear and tear.

Residual value of an asset is the scrap value of the asset at the end of its life. Depreciation amount is the total amount written off during the useful life of the asset . Adding both we get the Cost of the fixed asset.

Depreciation is a means of allocating the cost of a material asset over its useful life, and depletion is used to allocate the cost of extracting natural resources

Book value of an asset is a value at which asset is recorded in books. It is also known as written down value.

Capital reserves are made out of capital profits. Capital profits may or may not involve cash receipts....ex: Premium on issue of shares or debentures involve cash receipts while profit on forfeiture of shares does not involve cash receipts.

because every time depreciation is calculated on written down value of an asset.

Depletion is an accounting techniqe used for allocation of value of natural resources.

Obsolescence is a notable reduction in the utility of an inventory item or fixed asset. The determination of obsolescence typically results in a write-down of the inventory item or asset to reflect its reduced value

Revenue profits are available for distribution of dividend. Dividend equalisation reserve is one such reserve created out revenue profits.