Does Depreciation generate funds for replacement of Assets... ??????
Does Depreciation generate funds for replacement of Assets ?
satish r (student) (91 Points)
25 June 2010
Siddarth R Sunder Ram
(Finance Professional)
(230 Points)
Replied 25 June 2010
Yes. When you charge depreciation, you are essentially setting aside a part of the profits every year during the lifetime of the existing asset, which means that this portion of the profits is retained and accumulated without being distributed to the shareholders as dividend. Thus at the end of useful life of the existing asset, you'll have some funds to replace the asset.
Mohammad Asif
(chartered accountant)
(191 Points)
Replied 02 November 2010
yes when we make provision for depreciation a certain amount is accumulated to be used at the time of purchase of new assets
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