NCERT Class 11 Accountancy Financial Accounting-I: Chapter 7 — Depreciation, Provisions and Reserves
This chapter, "Depreciation, Provisions and Reserves," from NCERT Class 11 Accountancy (Financial Accounting-I), explains the concept of depreciation as per the matching principle. It details how the cost of fixed assets, whose benefits extend beyond one accounting period, should be spread over their useful lives. The chapter covers the meaning, causes, and methods (straight-line and written-down value) of calculating depreciation. It also introduces provisions and reserves, explaining their purpose, distinction, and types, including secret reserves, aligning with the principle of conservatism. This chapter is crucial for understanding asset value management and financial prudence in accounting for CBSE students.
Quick info
| Board | CBSE / NCERT |
|---|---|
| Class | Class 11 |
| Subject | Accountancy |
| Book | Financial Accounting-I |
| Chapter | Chapter 7 — Depreciation, Provisions and Reserves |
| Language | English |
| PDF type | NCERT Textbook |
| Session | CBSE 2026 |
| Reading time | 5 minutes |
| Word count | 841 |
Learning outcomes
- Explain the meaning of depreciation and differentiate it from amortization and depletion.
- State the need for charging depreciation and identify its causes.
- Compute depreciation using straight-line and written-down value methods.
- Record transactions related to depreciation and asset disposition.
- Explain the meaning and purpose of provisions and reserves.
- Distinguish between reserves and provisions and explain various types.
Vocabulary
| Word | Meaning |
|---|---|
| Depreciation | Decline in the value of a fixed asset due to use, passage of time, or obsolescence. |
| Matching Principle | Requires that the revenue of a given period is matched against the expenses for the same period. |
| Capital Expenditure | Expenditure that provides benefits for more than one accounting period. |
| Expired Cost | A part of the cost of a fixed asset that has been consumed or used up in an accounting period. |
| Obsolescence | The process of becoming outdated or no longer useful, often due to technological advancements. |
| Conservatism (Prudence) | A principle that requires anticipating no profit but providing for all possible losses. |
| Provisions | Amounts set aside to meet a specific liability, the amount of which cannot be determined with certainty. |
| Reserves | Profits retained in the business for future needs, growth, or expansion. |
| Amortisation | The systematic allocation of the cost of an intangible asset over its useful life. |
| Depletion | The exhaustion of natural resources, such as mines or forests. |
The complete chapter text is read in the official NCERT PDF viewer below (streamed from ncert.nic.in). This page provides NCERT Help study material — summary, vocabulary, practice questions, and FAQs — not a full reproduction of the textbook.
Read chapter online
This PDF is loaded from the official NCERT website (ncert.nic.in). Use the page buttons below to read — download is disabled on NCERT Help.
Read page by page below. PDF is streamed from the official NCERT website — no download button on this page.
Practice questions
- What is the fundamental accounting principle that necessitates depreciation? Answer: The matching principle.
- Name two main causes for the decline in the value of a fixed asset. Answer: Use and passage of time (or obsolescence).
- What is the difference between depreciation and obsolescence? Answer: Depreciation is the loss in value due to use or time, while obsolescence is the loss in value due to new technology or models.
- Give an example of a capital expenditure. Answer: Purchase of a machine for business use.
- What is the primary purpose of creating provisions? Answer: To meet a specific liability where the amount cannot be determined with certainty.
Frequently asked questions
What is depreciation in accounting?
Depreciation is the systematic allocation of the cost of a tangible asset over its useful life, representing the loss in value due to use, passage of time, or obsolescence.
Why is depreciation charged?
Depreciation is charged to match the expense of using an asset with the revenue it helps generate (matching principle) and to reflect the asset's reduced value in the financial statements.
What is the difference between depreciation, amortization, and depletion?
Depreciation applies to tangible assets, amortization to intangible assets, and depletion to natural resources.
What is the purpose of provisions?
Provisions are created to account for liabilities that are likely to arise but whose exact amount is uncertain, ensuring the principle of conservatism.
What are reserves in accounting?
Reserves are appropriations of profit set aside for specific future purposes, such as expansion, contingencies, or general growth of the business.
What is the main difference between provisions and reserves?
Provisions are created to meet a specific charge or liability of uncertain amount, while reserves are created out of profits for strengthening the financial position or for general business purposes.
Related resources
Important topics
Topics covered
NCERT Class 11 Accountancy — Financial Accounting-I — Chapter 7 — Depreciation, Provisions and Reserves. Verified by NCERT Help Editorial Team. Reviewed on 29 Jul 2026. Last updated 10 Aug 2026.