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What is depreciation?

Aplit intodia (owner) (43 Points)

07 March 2014

what is depreciation, is it a deffered revenue expenditure or an appropriation of profit or an expense or an expenditure?

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CA. Roopali Kadam (Jobs on assignment basis.) (1458 Points)
Replied 07 March 2014

Originally posted by : ca muthuswami
	what is depreciation, is it a deffered revenue expenditure or an appropriation of profit or an expense or an expenditure?

As per my knowledge:

Not an appropriation because PAT is calculated after deducting depreciation as expense
Expenditure incurred on Capital Asset which is having useful life is capitalised as Fixed Asset as per AS 10 & written off i.e expensed in P/L each year over its useful life. This sounds similar to deferred revenue expenditure that it has some useful life and written off considering spread -over years of Future benefits to the enterprise. But there is difference expenditure on Assets that will be used for producing/providing goods & services are recognised as Fixed Asset in Balance Sheet & not as deferred revenue expenditure.
Depreciation is NOT INCURRED. If you refer the GN on Terms Used in Financial Statements

Now considering matching concept & definition of expense in same GN as mentioned above Depreciation is an Expense

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Depreciation is non cash expense which is charge on fixed assets for continuous uses of fixed assets in business. Depreciation reduces the value of fixed assets even if such fixed assets is not put to used. Depreciation is mandatory under Income Tax i.e. if assessee fail to claim depreciation then IT Officer shall charge depreciation.

Depreciation is debited in P/L A/C as non cash expense which reduce the profit. As a result of which assessee will get depreciation tax sheild benefit.