Depreciation applies fixed assert in your balance sheet. This group of assert is also called property, plant, and equipment. They are items that you buy to use in your business to help generate income for more than 12 months. Example, of the fixed asset, include land and building, plant and equipment furniture, fixture and fitting computer motor vehicles and truck soon. The word "fixed” doesn’t mean they are not physically able. It means they’re port of your long to term business assert. That’s why they fall in the Non - Current asset part of your balance sheet. All fixed asset has fixed asset has a finite useful life but land is the exception.
Depreciation is an accounting concept which spread the cost of a fixed asset over the term of that asset’s useful life. The length of the life depends on useful life depends on the asset. For a computer it might be 3 years, a bottling and 8 years a building maybe 20 years. The reason for spreading the fixed asset cost is match expense with income. A car or a computer or a building will be used in the business to generate income for more than one year. In another word, the cost is an expense that related to future income in your business. So it should just be expense in the month you buy it. Imagine what it your business profit. If you charged the entire cost of the factory as an exposure in one month the business. This way we don’t run the business cash balance down to zero and we also don’t have a bank debt. Let’s say the Car has a useful also don’t bank debt. Let’s the car has a useful life of 4 years. For example, if a plant purchases a generator for five years in $ 5000. And it’s per years Depreciation charge is $1000. At the mid time or in 3 years when generators have some problem and it is damaged and for our project we must need Generator. So we need to replace this with a new one and the depreciation cost $ 2000 help a small amount of capital for generator otherwise we issue the fund from main balance. So by this example, we can clearly say that depreciation definitely. Directly it doesn’t generate the cost but indirectly at the time of replacement it has a capital amount so for buying any equipment after it life cycle also help the fund for buying new equipment. So Depreciation is also a cost for financial analysis. Hence, theoretically, the most effectual method of securing this would be, if it were feasible, to Revalue everything at stated intervals, and to write off whatever loss such valuations might reveal without regard to any prescribed rate. The plan of valuing every year instead of adopting a depreciation rate, though it might appear the more perfect, is too tedious and expensive to be adopted the next best plan, which is that generally followed is to establish average rates which can without much trouble be written off every year, to check the result by complete or partial valuation at longer intervals, and to adjust the depreciation rate if required (Clark, 2004).
References
Clark, C. (2004). The Conditions of Economic Progress. The Macmillan Press.
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Depreciation applies fixed assert in your balance sheet. This group of assert is also called property, plant, and equipment. They are items that you buy to use in your business to help generate income for more than 12 months. Example, of the fixed asset, include land and building, plant and equipment furniture, fixture and fitting computer motor vehicles and truck soon. The word "fixed” doesn’t mean they are not physically able. It means they’re port of your long to term business assert. That’s why they fall in the Non - Current asset part of your balance sheet. All fixed asset has fixed asset has a finite useful life but land is the exception.
Depreciation is an accounting concept which spread the cost of a fixed asset over the term of that asset’s useful life. The length of the life depends on useful life depends on the asset. For a computer it might be 3 years, a bottling and 8 years a building maybe 20 years. The reason for spreading the fixed asset cost is match expense with income. A car or a computer or a building will be used in the business to generate income for more than one year. In another word, the cost is an expense that related to future income in your business. So it should just be expense in the month you buy it. Imagine what it your business profit. If you charged the entire cost of the factory as an exposure in one month the business. This way we don’t run the business cash balance down to zero and we also don’t have a bank debt. Let’s say the Car has a useful also don’t bank debt. Let’s the car has a useful life of 4 years. For example, if a plant purchases a generator for five years in $ 5000. And it’s per years Depreciation charge is $1000. At the mid time or in 3 years when generators have some problem and it is damaged and for our project we must need Generator. So we need to replace this with a new one and the depreciation cost $ 2000 help a small amount of capital for generator otherwise we issue the fund from main balance. So by this example, we can clearly say that depreciation definitely. Directly it doesn’t generate the cost but indirectly at the time of replacement it has a capital amount so for buying any equipment after it life cycle also help the fund for buying new equipment. So Depreciation is also a cost for financial analysis. Hence, theoretically, the most effectual method of securing this would be, if it were feasible, to Revalue everything at stated intervals, and to write off whatever loss such valuations might reveal without regard to any prescribed rate. The plan of valuing every year instead of adopting a depreciation rate, though it might appear the more perfect, is too tedious and expensive to be adopted the next best plan, which is that generally followed is to establish average rates which can without much trouble be written off every year, to check the result by complete or partial valuation at longer intervals, and to adjust the depreciation rate if required (Clark, 2004).
References
Clark, C. (2004). The Conditions of Economic Progress. The Macmillan Press.