This Bankers Tutorial article is independent educational material. Examples are illustrative, and changing rules or examination requirements should be checked at the official source.
01 / UNDERSTANDING
Understand the idea
Follow the machine from purchase through several reporting periods. The timeline explains how one initial cash payment can support repeated expense allocation without making depreciation a new annual payment. Let the business owner compare the annual expense with the machine's original payment and a hypothetical selling offer. The three numbers answer different questions. Explaining them separately helps a non-accountant understand why book value, cash spent and potential sale proceeds need not be identical.
02 / UNDERSTANDING
The concept in context
A long-lived asset supports activity over more than one reporting period. Depreciation allocates its depreciable cost across those periods using the selected method and estimates. Straight-line depreciation distributes the amount evenly when the assumptions support that approach, while other methods reflect different allocation patterns.
Recording depreciation does not mean the business pays that amount in cash each period. The asset purchase and later accounting allocation have different timing. Useful life and residual value are estimates that require appropriate review; the resulting carrying amount is not automatically the asset's current selling price.
03 / UNDERSTANDING
A worked learning case
A teaching example uses a machine costing ₹110,000, an assumed residual value of ₹10,000 and a useful life of five years. Straight-line depreciation is ₹20,000 a year. The machine was paid for at purchase, so the annual expense allocates cost rather than representing a new annual machine-payment obligation.
ORIGINAL EDUCATIONAL PRACTICE
Try it before you check.
Under the stated assumptions, what is the machine's annual straight-line depreciation?
Show the answer and reasoning
₹20,000.
Subtract the ₹10,000 assumed residual value from the ₹110,000 cost to obtain a ₹100,000 depreciable amount. Dividing by the assumed five-year life gives ₹20,000 annually. The calculation illustrates cost allocation and does not establish a tax deduction, cash payment or current market value for the machine.
Two traps to watch for.
- Treating annual depreciation as a fresh cash outflow.
- Assuming book carrying amount equals current sale proceeds.
YOUR TOPIC-SPECIFIC LEARNING MAP
Turn understanding into practice
Separate machine cost from the assumed residual amount.
Allocate the depreciable amount across the stated useful life.
Explain the difference between the expense and the purchase cash flow.
Explain the idea, apply it to a new situation, then check what changed in your reasoning.
BANKERS TUTORIAL · SOURCE NOTES
Keep the source alongside your notes.
Official links provide subject context and authoritative reference material. This guide’s explanation, scenario and question are original Bankers Tutorial learning content.
- iibf.org.in https://iibf.org.in/jaiib-junior-associate-IIBF
- iibf.org.in https://iibf.org.in/documents/RulesSyllabus/2026/FlagshipCourses/21%20-%20JAIIB-Final_Exam_24.07.25_Final_23.02.2026.pdf
- www.rbi.org.in https://www.rbi.org.in/commonperson/English/Scripts/PressReleases.aspx?Id=2123
For JAIIB preparation, check the current official notice before relying on changing dates, rules or examination requirements.
