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1. • CommentAuthorvickyahmad18
   • CommentTimeJun 20th 2008

    
   i m an accounting student and i don't have much idea about ALLOWED TREATMENT (REVALUATION METHOD) of fixed assets is there any one who can help me to understand this.....
2. • CommentAuthorramesh
   • CommentTimeJun 23rd 2008

    
   Allowed method is not a method by itself. It refers to the method allowed out of several methods available, as per your company policy or tax policy of govt.
   
   
   It is usually one of these:
   
   Straight line method: You depreciate a standard sum of say 10 % every year from the initial acquisition price of the asset. If the asset cost was 100, you can depreciate 10 every year and write off at the end of 10th year.
   
   Written Down value method: Here the first year's depreciation will be the same as under Straight Line Method but the subsequent depreciation will be 10 % of the value written down in every succeesive year. The firyst year's depreciaton will be 10, the second year's will be ( 9 ie., 10 % of 90), the third year will be 8.10 (ie. 10% of 81 and so on)
   
   The first method allows for faster writing down and assets and is profitable to a profit making company as higher amounts can be charged to the P&L account, profit reduced and tax incidence reduced.
   
   There is a much faster method called residual value method. Here you assume that an asset will have a scrap value at the end of its life. This assumed scrap value is deducted from the asset in the first year itself. Therefore, this is much faster.
   
   Which is of these methods is allowed as per your national accounting body's standards, taxation authorities, etc. is the allowed method.
   
   I hope this clarifies your doubts.