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Depreciation
Depreciation is an attempt to spread the cost of long-lived assets, as an expense to the profit and loss account, over its useful economic life.
Most fixed assets such as building, plant, machinery, office equipment and the like have a limited useful life. These assets are not acquired primarily for resale but in anticipation that these assets will benefit the business in the form of generating revenue over a number of future accounting periods. Although the expenditure is made early in the life of assets, they provide for benefit throughout their useful life.
When a fixed asset is acquired it is recorded in the accounts at its acquisition cost i.e. the price paid to acquire it (whether purchased against cash or credit is irrelevant). This is because, as per cost convention, the acquisition cost of an assets is capitalizes (Capitalization means that an expenditure on the acquisition of an assets is not charged immediately as a cost against revenue in the profit and loss account, but is carried forward as a fixed asset, in the balance sheet), which is regarded as a pre-payment to be enjoyed by the business concern over the estimated useful life of the asset, The acquisition cost should, therefore, be written off as an expense during it useful life,i.e.,a portion of the cost should be charged against a profit as an expense in each of the accounting periods in which the assets gainfully used, this accounting process of gradually converting the unexpired cost of fixed assets into expenses over a series of accounting periods is called Depreciation, though depreciation is a mature (however is incorrect) of a reduction in the use value of an asset, it does not refer to physical deterioration or decreases in its market value, it is not concerned with measurement of the value of an asset at any point of time, the written down value of a fixed asset appearing in the balance sheet is not likely to agree with the amount that could be realized from its sale, in essence , depreciation is the process of allocating that cost of a fixed asst
(Less any residual value) over its estimated useful life in a rationale and systematic manner. Since depreciation is a method of spreading the cost of the asset over its working life, it may be charged even though the asset may be thought to have appreciated in value in money terms (e.g. Land and Building) as it may provide for obsolesce it can be anticipated. Obsolescence is the process of obsolete. It the decline in value of a fixed assets through external causes such as technological change or change in demand. In accounting, its significance is that it is one of the factors leading to a reduction in the useful economic life of a fixed asset.
Depreciation is an attempt to spread the cost of long-lived assets, as an expense to the profit and loss account, over its useful economic life.
Most fixed assets such as building, plant, machinery, office equipment and the like have a limited useful life. These assets are not acquired primarily for resale but in anticipation that these assets will benefit the business in the form of generating revenue over a number of future accounting periods. Although the expenditure is made early in the life of assets, they provide for benefit throughout their useful life.
When a fixed asset is acquired it is recorded in the accounts at its acquisition cost i.e. the price paid to acquire it (whether purchased against cash or credit is irrelevant). This is because, as per cost convention, the acquisition cost of an assets is capitalizes (Capitalization means that an expenditure on the acquisition of an assets is not charged immediately as a cost against revenue in the profit and loss account, but is carried forward as a fixed asset, in the balance sheet), which is regarded as a pre-payment to be enjoyed by the business concern over the estimated useful life of the asset, The acquisition cost should, therefore, be written off as an expense during it useful life,i.e.,a portion of the cost should be charged against a profit as an expense in each of the accounting periods in which the assets gainfully used, this accounting process of gradually converting the unexpired cost of fixed assets into expenses over a series of accounting periods is called Depreciation, though depreciation is a mature (however is incorrect) of a reduction in the use value of an asset, it does not refer to physical deterioration or decreases in its market value, it is not concerned with measurement of the value of an asset at any point of time, the written down value of a fixed asset appearing in the balance sheet is not likely to agree with the amount that could be realized from its sale, in essence , depreciation is the process of allocating that cost of a fixed asst
(Less any residual value) over its estimated useful life in a rationale and systematic manner. Since depreciation is a method of spreading the cost of the asset over its working life, it may be charged even though the asset may be thought to have appreciated in value in money terms (e.g. Land and Building) as it may provide for obsolesce it can be anticipated. Obsolescence is the process of obsolete. It the decline in value of a fixed assets through external causes such as technological change or change in demand. In accounting, its significance is that it is one of the factors leading to a reduction in the useful economic life of a fixed asset.
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