The Pros And Cons Of Depreciation

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Disposal of an asset occurs when the asset is sold, traded, or discarded. Furthermore, the company must update depreciation to the date of sale and must calculate a gain or loss on the disposal. When the selling price of the asset exceeds its book value it means gain occurs. However, when the selling price of the assets is less than its book value it shows loss (Porter, G.A. & Norton C.L.).
An asset may be disposed of in several different ways. One prevalent method is to sell the asset for cash. Sale of an asset involves two consequential considerations. First, depreciation must be recorded up to the date of sale. If the sale does not occur at the fiscal year-end, customarily December 31, depreciation must be recorded for a partial period from the
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Goods are produced with the assist of machinery which incurs depreciation in the technique of production. This depreciation need to be regarded as a part of the value of manufacturing of goods. Otherwise, the machinery Y would be proven less than the genuine cost. Sales price is constant typically on the basis of cost of production. So, if the fee of production is proven less by means of ignoring depreciation, the sale price will also be constant at low stage resulting in a loss to the business (“accounting details” s.f).
Furthermore, the businessman can replace his/her assets through depreciation. After sometime, an asset will be totally exhausted on account of use. A new asset must then be purchased requiring a giant sum of money. If the total amount of earnings is withdrawal from enterprise each year barring considering the loss on account of depreciation, fundamental sum may now not be reachable for shopping for the new asset. In such a case the required cash is to be collected by introducing sparkling capital or through obtaining loan or with the aid of promoting some different assets. This is contrary to sound commerce
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