sir can u please tell me why we have to depreciate assets in accounts? wts the reason behind this?
3 Replies
kavitha
(studying final)
(830 Points)
Replied 12 April 2012
main purpose
Depreciation is an allowance or provision made in the financial records of a business or association for "wear and tear" and "technical obsolescence ". The idea of depreciation is to spread the cost of that capital asset over the period of its "useful life to the entity" that currently owns it. If the full cost of the asset were to be borne in the year that it was purchased, then that year's expenditure would be unfairly penalised whilst expenditure during the remaining years, which were still receiving the benefit from the asset, would not be affected.
mahak katyal
(a)
(135 Points)
Replied 22 April 2012
agree with Ms.Kavitha
other than that,,the company would be able to create a provision for depreciation which would act as a support while buying a new asset at a later point of time.
Harkesh Kumar
(Finance Manager)
(97 Points)
Replied 26 April 2012
Dear Naresh
The main purpose to provide depreciation on fixed assets below :-
a) To Calculate the True Profits:
b) To show true Financial Position:
c) To make Provision for replacement of assets:
Other reasons are
d) To have some Incidental advantage
e) To have Tax advantage
f) To maintain the original monetary investment of the asset intact.
Internal Reasons:
i) Wear and Tear purpose
ii) Not using
iii) Lack of proper Maintainence
iv) Change in production formal
v) Restriction of production by government
vi) Reduction to demand of the product produced by the asset
vii) Technical progress
viii) Depletion
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