Study On The Extent of Impact of Depreciation On Income Statement

STUDY ON THE EXTENT OF IMPACT OF DEPRECIATION ON INCOME STATEMENT
ABSTRACT
To see the effect of depreciation on income statement of Punjab National Bank.

Examine how the bank is performing comparing to past 3 years. What is
depreciation & Income. What are the different methods of depreciation used and
what will be the effect of applying each depreciation. Shown difference between
depreciation on income statement and balance sheet of the bank. Past 2 years data
is collected and compare what is income in both the years.
Accounting Standard AS6 of depreciation is referred to apply depreciation on
various incomes of the company. Finally to calculate and examine what is the profit
of the company after deducting depreciation i.e Net profit of the Year.
According to schedule XVI. This Standard deals with depreciation accounting and
applies to all depreciable assets, except the items to which special considerations
Secondary data is collected. Data is collected from PNB account directly and from
different websites.
https://www.pnbindia.in/
http://www.investorwords.com/
www.moneycontroll.com
INDUS BUSINESS ACADEMY
INTRODUCTION
'PNB was established on May 19, 1894. The founding board was drawn from
different parts of India professing different faiths and a varied back-ground with,
however, the common objective of providing country with a truly national bank
which would further the economic interest of the country.
Business Performance:
During FY14, Punjab National Bank maintained it NUMBER ONE position in
Domestic Business, Domestic Deposits, Domestic Advances, CASA Deposits and
Operating Profit amongst nationalized bank. The performance highlights of the
Bank in terms of business and profit are shown below:
Table consists of business performance of PNB for the particular years
Rs. In Crore
Parameters
Mar'09 Mar'10 Mar'11 Mar'12 Mar'13 Mar14 CAGR

(%)
Operating Profit 5690 7326 9056 10614 10907 11384 14.88%
Net Profit
3091 3905 4433 4884 4748 3343 1.58%
Deposit
209760 249330 312899 379588 391560 451397 16.56%
Advance
154703 186601 242107 293775 308796 349269 17.69%
Total Business 364463 435931 555005 673366 700356 800666 17.05%
Source: https://www.pnbindia.in/
With 38.30% share of CASA Deposits to Total Deposits, PNB maintained its Number
one position amongst peers. Further in terms of Bottom line performance, the Bank
achieved highest Operating Profit of Rs 11,384 crore during FY14. Net Interest
Margin (NIM) at 3.44% remained one of the highest amongst peer banks
METHODOLOGY
Statement of Problem
A Study on the extent of impact of Depreciation on Income statement with
special reference to Punjab National Bank
Objective:
To determine to what extent depreciation is going to affect income.
To find out how depreciation is effecting Income statement of Punjab
National Bank. To what extent depreciation varies for 2 years.
To find how it shows effect on Income and profit of the company
Research Design:
Secondary Research
Data collected from company website

ANALYSIS & INTERPRETATION

DEPRECIATION
1. A noncash expense that reduces the value of an asset as a result of wear and
tear, age, or obsolescence. Most assets lose their value over time (in other words,
they depreciate), and must be replaced once the end of their useful life is reached.
There are several accounting methods that are used in order to write off an asset's
depreciation cost over the period of its useful life. Because it is a non-cash expense,
depreciation lowers the company's reported earnings while increasing free cash
flow.
2. For accounting purposes, depreciation indicates how much of an asset's value
has been used up. For tax purposes, businesses can deduct the cost of the tangible
assets they purchase as business expenses; however, businesses must depreciate
these assets in accordance with IRS rules about how and when the deduction may
be taken based on what the asset is and how long it will last.
3. Depreciation is used in accounting to try to match the expense of an asset to
the income that the asset helps the company earn. For example, if a company
buys a piece of equipment for $1 million and expects it to have a useful life of 10
years, it will be depreciated over 10 years. Every accounting year, the company
will expense $100,000 (assuming straight-line depreciation), which will be
matched with the money that the equipment helps to make each year.
4. Currency and real estate are two examples of assets that can depreciate or
lose value. During the infamous Russian ruble crisis in 1998, the ruble lost 25% of
its value in one day. During the housing crisis of 2008, homeowners in the
hardest-hit areas, such as Las Vegas, saw the value of their homes depreciate by
as much as 50%.
Methods of Depreciation
Cost of a fixed asset must be charged to the income statement in a manner that
best reflects the pattern of economic use of assets.
Types of depreciation
Common methods of depreciation are as follows:
Straight Line Depreciation Method

Reducing Balance Depreciation Method
Sum of the years' digits | Depreciation Method
Units of Production Depreciation
Straight Line
Depreciation Method
Reducing Balance
Depreciation Method
Depreciation
Sum of the years'

digits | Depreciation
Method
Units of Production
Depreciation
Straight Line Depreciation Method

Straight line depreciation method charges cost evenly throughout the useful life of
a fixed asset.
This depreciation method is appropriate where economic benefits from an asset
are expected to be realized evenly over its useful life.
Straight line method is also convenient to use where no reliable estimate can be
made regarding the pattern of economic benefits expected to be derived over an
asset's useful life.
Formula
Straight line depreciation can be calculated using any of the following formulas:
Depreciation per annum =
( Cost Residual Value )

Useful Life
Depreciation per annum ( Cost Residual Value ) x Rate of depreciation

=
Where:
Cost is the initial acquisition or construction costs related to the asset as well as
any subsequent capital expenditure.
Residual Value, also known as its scrap value, is the estimated proceeds expected
from the disposal of an asset at the end of its useful life. The portion of an asset's
cost equal to residual value is not depreciated because it is expected to be
recovered at the end of an asset's useful life.
Useful Life is the estimated time period that the asset is expected to be used
starting from the date it is available for use up to the date of its disposal or
termination of use. Useful life is normally expressed in units of years or months.
Rate of depreciation is the percentage of useful life that is consumed in a single
accounting period. Rate of depreciation can be calculated as follows:
Rate of depreciation =
x 100%
Useful Life
e.g. rate of depreciation of an asset having a useful life of 8 years is 12.5% p.a.
1
x 100% = 12.5% per year
8
-
Reducing Balance Depreciation Method

Reducing Balance Method charges depreciation at a higher rate in the earlier years
of an asset. The amount of depreciation reduces as the life of the asset progresses.
Depreciation under reducing balance method may be calculated as follows:
Depreciation per annum = (Net Book Value - Residual Value) x Rate%
Where:
Net Book Value is the asset's net value at the start of an accounting period. It is
calculated by deducting the accumulated (total) depreciation from the cost of the
fixed asset.
Residual Value is the estimated scrap value at the end of the useful life of the asset.
As the residual value is expected to be recovered at the end of an asset's useful life,
there is no need to charge the portion of cost equaling the residual value.
Rate of depreciation is defined according to the estimated pattern of an asset's use
over its life term.
Example:
An asset has a useful life of 3 years.
Cost of the asset is $2,000.
Residual Value is $500.
Rate of depreciation is 50%.
Depreciation expense for the three years will be as follows:
NBV
R.V
Rate
Depreciation
Accumulated
Depreciation
Year1:
(2000
500)
50%
750
750
Year2:
(1250
500)
50%
375
1125
Year3:
(875
500)
50%
375*
1500
*Under reducing balance method, depreciation for the last year of the asset's
useful life is the difference between net book value at the start of the period and
the estimated residual value. This is to ensure that depreciation is charged in full.
As you can see from the above example, depreciation expense under reducing
balance method progressively declines over the asset's useful life.
Reducing Balance Method is appropriate where an asset has a higher utility in the
earlier years of its life. Computer equipment for instance has better functionality in
its early years. Computer equipment also becomes obsolete in a span of few years
due to technological developments. Using reducing balance method to depreciate
computer equipment would ensure that higher depreciation is charged in the
earlier years of its operation.
Sum of the years' digits | Depreciation Method

Definition: Sum of the years' digits depreciation method involves calculating
depreciation based on the sum of the number of years in an asset's useful life.
Explanation:
Sum of the years' digits depreciation method, like reducing balance method, is a
type of accelerated depreciation technique that allocates higher depreciation
expense in the earlier years of an asset's useful life.
Calculation of depreciation under this method can be summarized in the following
4 steps:
Step 1: Calculate the sum of the years' digits in an asset's useful life
For an asset having a useful life of 4 years, the sum of the years' digits will be
calculated as follows:
Sum of years' digits = 4 + 3 + 2 + 1 = 10
Step 2: Calculate the depreciable amount
Depreciable amount, as with all depreciation methods, is equal to:
Asset's cost of acquisition or construction including any subsequent capital

expenditure
Less: Estimated residual value or scrap value at the end of the asset's useful life
Step 3: Calculate the un-depreciated useful life
Un-depreciated useful life is equal to the number of years in the asset's useful life
that have not yet been subjected to depreciation.
Hence, for an asset that has a useful life of 4 years, the un-depreciated useful life
to be used in calculating depreciation shall be 4 years in the first year of
depreciation, 3 years in the second year and so on.
Step 4: Calculate depreciation using the sum of years' digits & un-depreciated
useful life
Depreciation using the sum of the years' digits method can be calculated using the
following formula:
Depreciation
Expense
Un-depreciated useful life

Depreciable Amount (Step
= (Step 3)
x
2)
Sum of the years' digits (Step 1)
Example
Following information relates to a fixed asset:
Cost
$100,000
Residual Value $10,000
Useful Life
3 Years
Calculate depreciation over the useful life of the asset using the sum of the years'
digits method.
Step 1: Calculate the sum of the years digits
Sum of the years' digits = 3 + 2 + 1 = 6
Step 2: Calculate the depreciable amount
Depreciable amount = $100,000 - $10,000 = $90,000
Step 3: Calculate the un-depreciated useful life
Year 1 Year 2 Year 3
Un- depreciated useful life (years) 3

2
1
Step 4: Calculate depreciation expense
3 (Step 3)
Year 1: Depreciation expense =
x $90,000 (Step 2) = $45,000
6 (Step 1)
2 (Step 3)
x $90,000 (Step 2) = $30,000
6 (Step 1)
1 (Step 3)
x $90,000 (Step 2) = $15,000
6 (Step 1)
Note: Over the life of the asset, the total depreciation charge equals to the
depreciable amount, i.e. $90,000 (Step 2). Also note that the amount of annual
depreciation progressively declines as the asset ages. This method of depreciation
is therefore appropriate for assets whose utility and productiveness is greater in
the earlier years of their life (e.g. computer equipment).
Units of Production Depreciation Method

Units of Production Depreciation Method, also known as Units of Activity and Units
of Usage Method of Depreciation, calculates depreciation on the basis of expected
output or usage.
For example, a machine may be depreciated on the basis of output produced during
a period in proportion to its total expected production capacity. Therefore, useful
life of an asset under Units of Production Method is stated in terms of production
output or usage rather than years of service.
Depreciation per annum = (Cost - Residual Value) / Useful Life
The Formula for calculation of depreciation under Units of Production Method is as
follows:
Stage of Completion % = Value of Work Certified as complete x 100
Total Expected Production or Usage
Where:
Cost includes the initial and any subsequent capital expenditure.
Residual Value is the estimated scrap value at the end of the useful life of the
asset. Since residual value is expected to be recovered at the end of an asset's
10
useful life, there is no need to charge the portion of asset's cost equaling the
residual value.
Example - Units of Production Depreciation
Oil PLC installs a crude oil processing plant costing $12 million with an estimated
capacity to process 50 million barrels of crude oil during its entire life. Production
during the first year of operation is 2 million barrels. Expected residual value of the
processing plant is $2 million.
Depreciation charge for the first year is calculated as follows:
Depreciation Expense = ($12 - $2m) x 2 / 50 = $0.4 million
Example - Units of Usage (Activity) Depreciation

Plastic LTD purchases a steel mould costing $1 million to be used in the production
of plastic glasses. The mould could be used in 8 production batches after which it
will have a scrap value of $.2 million. During the first year, the company
manufactures 2 batches of glasses.
Depreciation charge for the year is calculated as follows:
Depreciation Expense = ($1 - $0.2m) x 2 / 8 = $0.2 million
Considerations - Advantages and Disadvantages
Units of Production Method may be appropriate where there is a high correlation
between activity of an asset and its physical wear and tear. As no depreciation
under this method is charged when an asset remains idle, it is not appropriate for
depreciating assets that suffer a significant decrease in their earning potential with
the passage of time for reasons such as technological obsolescence.
11
Impact of using different depreciation methods

The total amount of depreciation charged over an asset's entire useful life (i.e.
depreciable amount) is the same irrespective of the choice of depreciation method.
The adoption of a particular depreciation method does however effect the amount
of depreciation expense charged in each year of an asset's life.
Following diagram illustrates the effect of using different depreciation methods on
yearly depreciation expense:
The above illustration is based on the following information:

Cost of fixed asset
Residual Value
$100,00
0
Nil
Useful Life
4 Years
Total Machine
hours
20,000
Rate of
depreciation
40%
(for calculating depreciation using units of activity

method)
(for calculating depreciation using reducing balance
method)
12
For calculation and working, you may view the depreciation

worksheet.
Following can be deduced from the diagram:
Straight Line
Depreciation
Results in an equal expense of $25,000 each year.
Depreciation charge is reduced by 40% in each period (i.e. the

Reducing Balance
rate used in this example) until the last year in which the
Depreciation
entire un-depreciated amount is charged off.
Sum of the Year'
Digits
Depreciation
Depreciation expense decreases each year by $10,000.
Units of Activity
Depreciation
Depreciation charge varies in line with the change in number

of machine hours consumed each year.
13
Comparison of Depreciation Methods

Advantages
Straight Easy to calculate
Line
Useful where the pattern of
economic benefits are hard to
determine with precision.
Disadvantages
May not reflect the true pattern of
asset's economic benefits.
Suitable for depreciating assets that

provide similar level of economic
benefits throughout their useful life
(e.g. buildings).
Reducing Appropriate where the usefulness of The rate of depreciation selected is
Balance an asset declines over its useful life subject to bias
(e.g. IT equipment).
Sum of Easier to understand
the Year'
Digits
The effect of decrease in
depreciation expense compared to
reducing balance method.
More difficult to calculate.
Units of Most accurately reflects the pattern Difficult to determine and measure a
Activity of consumption of economic
reasonable basis of activity
benefits.
Suitable in case of fixed assets that
depreciate in proportion to units of
activity rather than just the passage
of time.
14
INCOME
Definition of 'Income'
Money that an individual or business receives in exchange for providing a good or
service or through investing capital. Income is consumed to fuel day-to-day
expenditures. Most people age 65 and under receive the majority of their income
from a salary or wages earned from a job. Investments, pensions and Social Security
are primary sources of income for retirees. In businesses, income can refer to a
company's remaining revenues after all expenses and taxes have been paid. In this
case, it is also known as "earnings". Most forms of income are subject to taxation.
Explanation:
Most individuals gain income through earning wages by working and/or making
investments into financial assets like stocks, bonds and real estate. In most
countries, earned income is taxed by the government before it is received. The
revenue generated by income taxes finances government actions and programs
as determined by federal and state budgets. The IRS calls income from sources
other than a job, such as investment income, unearned income".
The wages, salaries, interest, dividends, business income, capital gains, pension
and annuity payments, rental income, farming and fishing income, unemployment
compensation, jury duty pay, gambling income, bartering income, retirement plan
distributions and stock options an individual receives in a given tax year are
Considered taxable income in the United States.
Types of income that may be tax-exempt include interest income from U.S.
Treasury securities (which is exempt at the state and local levels), interest from
municipal bonds (which is potentially exempt at the federal, state and local levels)
and capital gains that are offset by capital losses. Types of income that may be
taxed at lower rates include qualified dividends and long-term capital gains.
Social Security income is sometimes taxable, depending on how much other
income the taxpayer receives during the year. The money an individual has left
after taxes are subtracted from income is called disposable income. Most people
spend this money on necessities like housing, food and transportation and on
discretionary items like restaurant meals, vacations and cable television.
15
Why is depreciation on the income statement

different from the depreciation on the balance
sheet?
DEPRECIATION
INCOME STATEMENT
BALANCE SHEET
Depreciation on the income statement is the amount of depreciation expense that

is appropriate for the period of time indicated in the heading of the income
statement. The depreciation reported on the balance sheet is the accumulated or
the cumulative total amount of depreciation that has been reported as expense on
the income statement from the time the assets were acquired until the date of the
balancesheet.
Let's illustrate the difference with an example. A company has only one depreciable
asset that was acquired three years ago at a cost of $120,000. The asset is expected
to have a useful life of 10 years and no salvage value. The company uses straightline depreciation on its monthly financial statements. In the asset's 36th month of
service, the monthly income statement will report depreciation expense of $1,000.
On the balance sheet dated as of the last day of the 36th month, accumulated
depreciation will be reported as $36,000. In the 37th month, the income statement
will report $1,000 of depreciation expense. At the end of the 37th month, the
balance sheet will report accumulated depreciation of $37,000.
16
What Is the Impact of Depreciation Expense on

Profitability?
A depreciation expense has a direct effect on the profit that appears on a
company's income statement. The larger the depreciation expense in a given year,
the lower the company's reported net income -- its profit. However, because
depreciation is a non-cash expense, the expense doesn't change the company's
cash flow.
How Depreciation Works
When a business purchases a physical asset with a useful life of longer than a year
-- a building, for example, or a vehicle -- it doesn't report the full cost as an upfront
expense. That's because accounting rules require that the expense be spread over
the useful life of the asset. That's done through depreciation. Say your business
bought a new truck for $30,000 cash, and it estimates that the truck has an
estimated useful life of 10 years. Under the most common depreciation method,
called the straight-line method, your company would report no upfront expense
but a depreciation expense of $3,000 each year for 10 years.
Expenses' Effect on Profits
Profit is simply all of a company's sales revenue and any other gains minus its
expenses and any losses. A $3,000 depreciation expense, then, has the effect of
reducing profit by $3,000. It's important to note, however, that "profit" is really just
an accounting creation. With the truck in the previous example, your business
spent the money upfront. All of the money was gone as soon as you bought the
truck. But as far as your profit-and-loss calculations are concerned, you didn't really
give up any value. Instead, you just traded $30,000 worth of cash for $30,000 worth
of truck. As time passes and you "use up" that value by using the truck, you turn
the cost into an expense through depreciation.
17
Cash Flow
If your business were accounting for the truck using cash accounting -- the method
people use to balance their checkbooks -- you would have shown a $30,000
expense when you bought the truck and no expense at any time afterward. Under
straight-line depreciation, you show no expense at the start, then $3,000 a year for
10 years. In each case, your overall profits decline by $30,000; it's just a matter of
timing. The "real-world" effect is on cash flow. In both cases, you have a $30,000
outflow of cash at the beginning and no outflow afterward.
Tax Accounting
Though most companies use straight-line depreciation for their financial
accounting, many use a different method for tax purposes. (This is perfectly legal
and common.) When calculating their tax liability, they use an accelerated schedule
that moves most of the depreciation to the earliest years of the asset's useful life.
That produces a greater expense in those years, which means lower profits -which, since businesses get taxed on their profits, means a lower tax bill in the
earlier years.
18
Depreciation Expense
Depreciation moves the cost of an asset to Depreciation Expense during the asset's
useful life. The accounts involved in recording depreciation are Depreciation
Expense and Accumulated Depreciation. As you can see, cash is not involved. In
other words, depreciation reduces net income on the income statement, but it
does not reduce the Cash account on the balance sheet.
Because we begin preparing the statement of cash flows using the net income
figure taken from the income statement, we need to adjust the net income figure
so that it is not reduced by Depreciation Expense. To do this, we add back the
amount of the Depreciation Expense.
Depletion Expense and Amortization Expense are accounts similar to Depreciation
Expense, as all three involve allocating the cost of a long-term asset to an expense
over the useful life of the asset. There is no cash involved.
Illustration - 1
The only transaction recorded by Good Deal during June was the depreciation on
the office equipment. Recall that on May 31 Good Deal purchased the office
equipment (a new computer and printer) for $1,100 and it was put into service on
the same day. Let's assume that a depreciation expense of $20 per month is
recorded by Good Deal. As a result, Good Deal's financial statements at June 30 will
be as follows:
19
20
A balance sheet comparing June 30 to May 31 and the resulting differences or

changes is shown
21
The cash flow statement for the month of June illustrates why depreciation
expense needs to be added back to net income. Good Deal did not spend any cash
in June, however, the entry in the Depreciation Expense account resulted in a net
loss on the income statement. To convert the bottom line of the income statement
(a loss of $20) to the amount of cash provided or used in operating activities ($0)
we need to add back or remove the depreciation expense amount.
22
Let's review the cash flow statement for the six months ended June 30:
The operating activities section starts with the net income of $280 for the
six-month period. Depreciation expense is added back to net income
because it was a noncash transaction (net income was reduced, but there
was no cash spent on depreciation). The increase in the Inventory account is
not good for cash, as shown by the negative $200. Similarly, the increase in
Supplies is not good for cash and it is reported as a negative $150. Combining
the amounts, the net change in cash that is explained by operating
activities is a negative $50.
The increase in long-term assets caused a cash outflow of $1,100 which is
reported in the investing activities section.
There were no changes in long-term liabilities. There was a change in owner's

equity since December 31, and as a result the financing activities section
reports the owner's $2,000 investment into the Good Deal Co.
Combining the operating, investing, and financing activities, the statement

of cash flows reports an increase in cash of $850. This agrees with the change
in the Cash account as shown on the balance sheets from December 31, 2012
and June 30, 2013.
23
What are the effects of depreciation?
The depreciation of assets such as equipment, buildings, furnishing, trucks, etc.

causes a corporation's asset amounts, net income, and stockholders' equity to
decrease. This occurs through an accounting adjusting entry in which the
account Depreciation Expense is debited and the contra asset
account Accumulated Depreciation is credited.
The amount of the annual depreciation that is reported on the financial
statements is an estimate based on the asset's 1) cost, 2) estimated salvage
value, and 3) useful life. Depreciation should be thought of as an allocation of
the asset's cost to expense (and not as a valuation technique). In other words,
the accountant is matching the cost of the asset to the periods in which
revenues are generated from the asset.
The amount of the annual depreciation reported on the U.S. income tax return
is based on the tax regulations. Since depreciation is a deductible expense for
income tax purposes, the corporation's taxable income (and associated tax
payments) will be reduced by its tax depreciation expense. (In any one year, the
depreciation expense for taxes will likely be different from the amount reported
on the financial statements.)
It should be noted that depreciation is viewed as a noncash expense. That is, the
corporation's cash balance is not changed by the annual depreciation entry.
(Often the corporation's cash is reduced for the asset's entire cost at the time
the asset is acquired.)
24
INCOME STATEMENT OF PNB

Standalone Profit & Loss
account
------------------- in Rs. Cr. ------------------Mar

'14
Mar '13
Mar '12
Mar '11
Mar '10
Interest Earned
0.00
41,893.33
36,428.03
26,986.48
21,466.91
Other Income
0.00
4,215.92
4,202.60
3,612.58
3,565.31
Total Income
0.00
46,109.25
40,630.63
30,599.06
25,032.22
Interest expended
0.00
27,036.82
23,013.59
15,179.14
12,944.02
Employee Cost
0.00
5,674.72
4,723.48
4,461.10
3,121.14
Selling, Admin & Misc Expenses
0.00
8,331.53
7,717.10
6,269.47
4,838.88
Depreciation
0.00
318.50
292.26
255.85
222.83
Preoperative Exp Capitalized
0.00
0.00
0.00
0.00
0.00
Operating Expenses
0.00
8,165.05
7,002.75
6,364.22
5,761.36
Provisions & Contingencies
0.00
6,159.70
5,730.09
4,622.20
2,421.49
Total Expenses
0.00
41,361.57
35,746.43
26,165.56
21,126.87
Mar
'14
Mar '13
Mar '12
Mar '11
Mar '10
Income
Expenditure
25
12
mths
12 mths
12 mths
12 mths
12 mths
Net Profit for the Year
0.00
4,747.67
4,884.20
4,433.50
3,905.36
Extraordinary Items
0.00
0.00
0.00
0.00
0.00
Profit brought forward
0.00
0.00
0.00
0.00
7.64
Total
0.00
4,747.67
4,884.20
4,433.50
3,913.00
Preference Dividend
0.00
0.00
0.00
0.00
0.00
Equity Dividend
0.00
954.38
746.19
696.99
693.67
Corporate Dividend Tax
0.00
162.20
121.05
113.07
116.43
Earning Per Share (Rs)
0.00
134.31
144.00
139.94
123.86
Equity Dividend (%)
0.00
270.00
220.00
220.00
220.00
Book Value (Rs)
0.00
924.45
820.13
678.91
514.77
Transfer to Statutory Reserves
0.00
3,631.10
4,016.96
3,623.44
1,532.46
Transfer to Other Reserves
0.00
-0.01
0.00
0.00
1,570.44
Proposed Dividend/Transfer to
Govt
0.00
1,116.58
867.24
810.06
810.10
Balance c/f to Balance Sheet
0.00
0.00
0.00
0.00
0.00
Total
0.00
4,747.67
4,884.20
4,433.50
3,913.00
Per share data (annualised)
Appropriations
Source: Moneycontrol.com
26
FINDINGS
Impact of depreciation on Income statement is explained by calculating the
depreciation on income. It can be shown as what is the profit of the company
before deducting depreciation and after deducting depreciation of Punjab National
Bank for the year Mar2013 & Mar2012.
Amount in crores
Here Depreciation is deducted from the Net profit of the year to find out what is
the profit of PNB before deducting depreciation. So profit before depreciation is
Rs. 5066.17 Cr & 5176.46 Cr
Amount in Crores
This can be explained through graph to show the difference.
27
Amount in Crores
Chart Title
5300
5200
5100
5000
4900
4800
4700
4600
4500
Mar'13
Profit before Dep
Mar'12
Profit after Dep
Y- axis Amount
X- axis No of years
In the graph we can see that the profit of the company decreases after deducting
the depreciation. Here it is shown the company earns profit if it not allows
depreciation on its assets. So the depreciation is totally causing the company to
gain less profit.
There is a decrease in the profit of the company by 8.23% while comparing to two
years. 8 % is the change in the profit of PNB. There has been 8% difference in the
profit for 2013 March where it is comparatively high in
Form Mar2012 It decreases the profit if the company.
28
CONCLUSION
The study on impact of depreciation on income statement. This shows on what
extent depreciation is effecting the income of the company.
Depreciation is of many types, each shows different effect on the income.
Depreciation should be deducted from the gross profit in profit & loss A/C.
The depreciable amount of a depreciable asset should be allocated on a systematic
basis to each accounting period during the useful life of the asset. 21. The
depreciation method selected should be applied consistently from period to
period.
A change from one method of providing depreciation to another should be made
only if the adoption of the new method is required by statute or for compliance
with an accounting standard or if it is considered that the change would result in a
more appropriate preparation or presentation of the financial statements of the
enterprise. When such a change in the method of depreciation is made,
depreciation should be recalculated in accordance with the new method from the
date of the asset coming into use. The deficiency or surplus arising from
retrospective re computation of depreciation in accordance with the new method
should be adjusted in the accounts in the year in which the method of depreciation
is changed. In case the change in the method results in deficiency in depreciation
in respect of past years, the deficiency should be charged in the statement of profit
and loss. In case the change in the method results in surplus, the surplus should be
credited to the statement of profit and loss. Such a change should be treated as a
change in accounting policy and its effect should be quantified and disclosed
In the income statement of PNB the depreciation shows more effect on income
which shows impact on the whole profit of the company. According to Accounting
Standards XIV and Schedule 6 Depreciation should be deducted from the gross
profit. But ibn the present situation totally the company is not gaining more profits
compared to the previous year.
29
BIBLIOGRAPHY
30

Study On The Extent of Impact of Depreciation On Income Statement

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STUDY ON THE EXTENT OF IMPACT OF DEPRECIATION ON INCOME STATEMENT

To see the effect of depreciation on income statement of Punjab National Bank.

INDUS BUSINESS ACADEMY