The accruals concept states that the income for the year must be matched against the expenditure. Depreciation is the reduction in value of an asset with the passage of time, due to particular wear and tear.
(Answer to the question)- Depreciating the asset is an expenditure for the business. This should be matched with the income it generates (say for example - delivery vehicles used for the transport of goods) to get a true and fair profit in the Income Statement.
balance sheet
Property depreciation only done on building land is in nature of application
Depreciation policy is management thing that what depreciation method to use and how much depreciation to charge to each asset. Depreciation concepts are concepts which govern the depreciation process which management cannot change they are universal rules to follow depreciation that how straight line depreciation work etc.
Yes depreciation expense is also an example of matching concept as in this way part of fixed asset cost is apportioned to income statement and depreciation is not used in cash basis of accounting as there cash purchase is fully expensed in purchasing year.
Advantages: Easy to use Matches Cost to revenues (Matching Concept) Disadvantages: Depreciation can not be charged when the Asset is not in use.
PAT + depreciation for the year
Gross DSCR= Cash accruals ( Profit after tax + Depreciation) + Interest ----------------------------------------------------------- Installments of loan + Interest Net DSCR = Cash Accruals (PAT + Depreciation) -------------------------------------- Installments
Depreciation. Accruals.
balance sheet
The accruals concept of accounting states that transactions are to be recognised when they occur, and reported in the periods to which they relate.
Going Concern Assumption
What is The application of the matching principle to depreciation of plant and equipment can best be described as?
Property depreciation only done on building land is in nature of application
Depreciation policy is management thing that what depreciation method to use and how much depreciation to charge to each asset. Depreciation concepts are concepts which govern the depreciation process which management cannot change they are universal rules to follow depreciation that how straight line depreciation work etc.
Yes depreciation expense is also an example of matching concept as in this way part of fixed asset cost is apportioned to income statement and depreciation is not used in cash basis of accounting as there cash purchase is fully expensed in purchasing year.
Explain the concept of depreciation and why organisations need to recognise deprecations expense in the Income Statement.
application of marketing concept