Adjustment of Appreciation in Final Accounts (Financial Statements)

Appreciation refers to an increase in the value of assets over a period of time. This increase in the value of assets may take due to various factors, such as an increase in demand, an increase in interest rates, or when there is inflation in the economy.

Adjustment:

The following treatment takes place in respect of Appreciation:

A. If Appreciation is given outside the trial balance:

In such a case, two effects will take place:

• First, it will be shown in the Cr. side of the Profit & Loss A/c.
• Second, the amount of fixed assets appearing in the Balance Sheet would increase by the amount of appreciation.

B. If Appreciation is given Inside the trial balance:

In such a case, it will be shown only on the Cr. side of the Profit & Loss A/c.

Illustration:

The following adjustments were noted :

1. The value of Plant and Machinery is appreciated by 10%.

2. Further Bad Debts amounting to 2,000 and Provision to be created at 5% of debtors.

3. Depreciation on the building is charged at 12.5%.

Solution: