NPO: National Park Residents Welfare Association (Regd) 1. Accounts maintained Various Account heads: i.

Subscriptions Account The monthly maintenance charges charged from the residents are recorded under this head. ii. Punjab National Bank Account This reflects the bank transactions of the association. iii. Cash-in-Hand Account iv. Area Development Fund Account The fund is maintained for the development of the parks and other public amenities. v. Stationery Account The stationery used for the office and for correspondence is recorded under this head. vi. Internet Charges Account The charges for internet services installed in the office are charged under this head. vii. Computer Account This account reflects the computer and its complementary peripherals like printer, fax etc. viii. Office Expenses Account The telephone, electricity charges of the office and the salary of the peon appointed for the office are charged under this head. ix. Investments Account This represents various investments made by the association. x. Miscellaneous Expenses Account etc. Various other expenses that dont fall into any other category like watchmans salary, guards salary, sweepers salary and garbage collectors wages are recorded under this head. 2. Main Source of income The monthly maintenance charges charged from the residents of the area is the main source of income of the association. 3. Main Expenditure i. Maintenance of park ii. Office expenses iii. Watchman, Sweeper, Garbage collectors wages. iv. Organisation of cultural activities, yoga camp etc. 4. Final Accounts Maintained i. Receipts and Payments Account It represents the summary of cash and bank transactions of the organization. ii. Income and Expenditure Account To determine the surplus or deficit arising out of the activities of the association. iii. Balance Sheet Reflecting the assets and liabilities of the association. 5. Head of the Association Elections are held for the post of the President, the Joint Secretary and the Treasurer of the Association besides them a body of ten members is appointed as the executive committee. President is the head of the Association.

6. Steps undertaken to maintain transparency in transactions i. The Executive Committee undertakes to prepare all the vouchers in the supervision of the President of the Association. ii. All the accounts and statements are presented before all the members half-yearly. 7. Treatment of surplus earned by the association The surplus is invested in Government Bonds, National Savings Certificates, Fixed Deposits etc. 8. Concept of Fund based accounting A fund by the name Area Development Fund is maintained for the upkeep of parks, conducting Yoga Camps, Blood Donation Camps, Cultural Programmes on Holi, Diwali etc. The contribution collected from the members for the purpose is added to the fund and the expenses on these events are charged to the fund. Find out what is depreciation and how is it a necessary evil? Depreciation can be defined as a reduction in the value of a fixed asset due to normal wear & tear (i.e. use), efflux of time or obsolescence through technology and market changes. According to AS 6: Depreciation is a measure of wearing out, consumption or other loss of value of a depreciable asset arising from use and passage of time. It is nothing but distribution of total cost of assets over its useful life. The need for charging depreciation in accounting records arises due to following reasons: 1. To match costs with revenues Fixed assets are used in business for more than one accounting year for generating revenue. A suitable proportion of the cost of fixed assets i.e. depreciation, is assumed to be consumed or expired for generation of revenue of a particular period and is charged as expense of that particular period. If depreciation is not charged against revenues Income Statement will not present a true and fair view of the results of the business operations. 2. To present true & fair financial position Fixed assets are used for more than one accounting year and their value reduced with time and use. If depreciation is not charged the value of the fixed assets will be overstated and this will not present the true financial position of the business. 3. To ascertain true cost of production Price of goods produced is fixed after considering the cost incurred in their production. If depreciation is not charged, the cost of production will be understated. 4. To comply with statutory requirements The Indian Companies Act requires that companies provide depreciation before declaring dividends. 5. To accumulate funds for replacement Depreciation is distribution of the cost of an asset over its useful life. Thus, depreciation provides a means to determine the amount required to be accumulated periodically so that the old asset (being used) can be replaced with a new one. Other terms related to depreciation and the context where the terms are used 1. Depletion It refers to the physical deterioration by the exhaustion of the natural resources. It is used in context of the reduction in the amount of the exhaustible natural resource. Examples: ore-deposits in mines, oil-wells, quarries etc. 2. Amortisation It refers to the economic deterioration by the expiration of intangible assets.

It is used in context of the reduction in value of the intangible assets of an organization. Examples: Goodwill, Copyright, Patents etc. 3. Obsolescence It refers to the economic deterioration by: i. invention of improved technique or equipment, ii. market decline due to change in taste and fashion etc. iii. inadequacy of existing plant to meet the increased business. Examples: When a machine or technology becomes outdated, such that further use is not economically feasible, the reduction in value of such machine is obsolescence. Is depreciation a result of fluctuations in the market value of the asset? No, depreciation is not the result of fluctuations in the market value of the asset, rather it is the result of the normal wear and tear. The amount of depreciation does not depend on the market value of the asset, but on the use it is put to. Is it advisable to provide for depreciation even though a business is running into losses? Yes, a business must charge depreciation even if it is running into losses: i. to match costs with revenues ii. to present true and fair position of the business iii. to ascertain true cost of production iv. to comply with statutory requirements Is it advisable to provide for depreciation on an asset which has not been used for one full year? Yes, depreciation must be provided on an asset even if it has not been put to use for the whole of the year because the value of an asset reduces also because of efflux of time. In Diminishing Balance Method, why does the asset depreciate more in earlier years than in latter years? Under Diminishing Balance Method, the depreciation is charged on a fixed rate at the written down value or book value of the asset, thus amount of depreciation goes on decreasing because the book value of the asset goes on diminishing year after year. Since, the amount of repairs and renewals is less in the earlier years and more in the later years, the total charge remains almost uniform year after year. Thus, this method suitable for those assets in relation to which the amount of repair and renewals increase and the possibility of obsolescence is more. It is suitable for assets such as Plant & Machinery. Last Problem Let the cost of car be Rs 3,00,000. Annual depreciation: 20%. The cost of petrol = Rs 68 per litre. The car gives a mileage of 10 km/litre. Car maintenance charges Rs 5,000 per annum. Taxi fare = Rs 15 per km. No. of days of commuting per month = 25 (on average considering 5 holidays) Total distance travelled per day = 40km First Year Annual charges in buying own car

Depreciation = 20% of Rs 3,00,000 = Rs 60,000 Total distance covered per month = (20+20)x 25 = 1,000 km Total annual petrol cost = 68 x (1,000/10) x 12 = Rs 81,600 Maintenance charges = Rs 5,000 Therefore, total cost = Rs (60,000 + 81,600 + 5,000) = Rs 1,46,600 Annual Charges in hiring taxi Taxi fare = (20+20) x 25 x 12 x15 = Rs 1,80,000 The annual charges of own car in the later years would reduce even more, as the depreciation is charged on reducing balance method. Thus the cost of using own car would reduce. So, clearly owning a car should be preferred over hiring a taxi.