Introduction to Depreciation
- Depreciation is an accounting technique which recognises that the value of fixed (non-current) assets falls over time
- It reflects wear and tear, the reduction in an asset's value as it ages or obsolescence
- It reflects wear and tear, the reduction in an asset's value as it ages or obsolescence
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Depreciation aims to allocate the historic cost of the asset in a way that reflects its reduction in value over time
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The current value of assets are recorded accurately in the statement of financial position
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The loss in the value of an asset over an accounting period is recorded accurately in the statement of profit or loss
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Reasons for Calculating Depreciation
Accurately calculate the businesses value |
Plan effectively for the replacement of assets |
Realistically reflects the costs of assets in financial statements |
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