Advantages Of Depreciation

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Depreciation in accounting concept is the gradual conversion of the cost of a tangible capital asset or fixed asset into an operational expense (called as depreciation expenses) over the asset’s estimated useful life. There have 3 objectives of the depreciation: 1) Spread a large expenditure (purchase price of the asset) proportionately over a fixed period to match the revenue received from it. 2) Reduce the taxable income by charging the amount of depreciation against the company’s total income. In effect, charging of depreciation means recovery of invested capital, by gradual sale of the asset over the years during which output or service are received from it. 3) Reflect the reduction in the book value of asset due to obsolescence or wear and tear. Depreciation normally…show more content…
More difficult to calculate
Units of activity Most accurate reflects the pattern of consumption of economic benefits. Suitable in case of fixed assets that depreciate in proportion to units of activity rather than just the passage of time. Difficult to determined and measure a reasonable basis of

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