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When we use asset in business due to general usage it bears some wear and tear. Eventually it will be completely destroyed or it will complete its useful life (e.g. due to technology improvements). So rather than write the asset off from the balance sheet in the final year we divide the cost of the asset by the number of years in which we expect to use it (to find the annual depreciation charge) and allocate the charge to all years in which we use the asset. This process is called depreciation.
We use depreciation because the asset is used for earning income. That's why the average value of the asset should be allocated to all those years in which it is used. If we don't distribute the cost to all years then profit will be higher than it really was and when in the last year of asset the asset is written off we would get less profit than was actually earned. This is not in accordance with accounting principles.
Also to reflect the expenses that went into production to produce the end result.
A piece of asset is bought and are broken down into segments as if each is a stand alone unit that contributed to your end result. Depreciate. Think of it as regular business expense that don't get used up in one go.
What else can I help you with?
Is depreciation charged on current assets or not when tax payer is individual?
Depreciation is always charged on fixed assets and it does not has any relation with individual or company status.
Why fixed assets depreciate?
Fixed assets depreciate because through depreciation process cost of fixed asset charged to all those fiscal years in which that fixed asset is used.
Fixed asset depreciation schedule?
Fixed asset depreciation schedule shows the calculation of yearly depreciation expense which is scheduled to be charged to income statement for all fixed assets and the total amount of depreciation applicable to specific income statement of business.
Sum of the year depreciation?
In sum of year digit depreciation method depreciation is charged based on total number of years fixed assets is usable in business instead of using any percentage or fixed amount of depreciation.
When depreciating fixed assetthe land is not depreciated?
Depreciation is always charged on the depreciable assets only.... books and teachers are teaching wrong actually.. that.. depreciation is charged on fixed assets.... but it is not true....Depreciation is always charged on fixed tangible assets which are depreciable...Assets which decrease their value because of their use, accident etc..for example, plant, machinery, motor vehicles etc...Clear all your accountancy doubts... use... "ULTIMATE BOOK OF ACCOUNTANCY"published by vishvas publications
Does depreciation is charged on intangible assets?
Depreciation is charged to tangible assets while amortization is used to charge intangible assets.
Can depreciation be for fixed asset only?
Depreciation is the method of allocating the amount of fixed asset to the fiscal year in which that asset utilized and it is only applicable to fixed assets because current assets are fully utilizable in current year that's why full amount of current assets are charged to income statement.
Fixed assets reduces profits in balance sheet?
depreciation of fixed assets reduces the profit as depreciation is also an expense.
Depreciation is provided on?
on Fixed Assets
What is depreciation of fixed assets?
Depreciation is the method of allocation of part of cost to all fiscal years to which fixed asset is used for revenue generation to income statement
Can depreciation charged at building?
Building is an asset for business and depreciation is only charged to assets of business so in this way depreciation is charged to building as well.
Is depreciation charged on current assets or not?
No
