Provision for depreciation

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Chintan Patel (Querist)
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26 December 2012 HELLO FRIENDS,Sometimes,the firms instead of reducing the value of the asset to the extent of its depreciation amount,open a new account "PROVISION FOR DEPRECIATION"?

WHY do they adopt this method and what is its significance or advantages?why don't they credit the asset account to the extent of its depreciation?
-thanking you in advance...

CA Sourabh Agarwal

CA Sourabh Agarwal (Expert)
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26 December 2012 One of the basis of charging depreciation is for providing funds for replacement of asset at the end of its economic life. To keep such tracking of funds and specially earmarking it in balance sheet helps the same.
Further as per reporting requirements requires reconciliation of total depreciation charged.

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