Question
What is depreciation? Discuss its objectives and explain the various methods used
for calculating depreciation.
Answer :
Word Count : 567
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Depreciation is the gradual and permanent decrease in the value of a fixed asset due to its use, passage of time, obsolescence, wear and tear, or other similar causes. It is a non-cash expense charged against the profits of a business. Assets such as machinery, buildings, furniture, vehicles and equipment generally provide benefits for more than one accounting period. Therefore, the cost of such assets is systematically allocated over their estimated useful lives. Depreciation does not represent a fall in market value alone; it is an accounting process for allocating the depreciable amount of an asset over its useful life. The main objective of depreciation is to ascertain the correct profit or loss of a business. Since fixed assets are used to earn revenue over several years, their cost should be distributed among the accounting periods that receive the benefit. It also helps in presenting the correct book value of assets in the
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