Depreciation on Assets - a understanding
Depreciation is a reduction in value of Assets due to reasons like wear and tear, obsolence so on and so forth. Depreciation can also be looked upon as the cost of using an asset. To use a asset we buy the same by paying a cost. But the same cost does not belong to any particular year as the assets will be used over more than one finacial year. By providing depreciation we are actually spreading the cost of an asset over its useful life.
Depreciation is a important consideration for any finacial statement. Its presence in finacial statement is abosolute for financial statements to give correct financial position of the organisation.
Now, when it is clear what is depreciation, question arises how is it calculated? Do we simply spread the cost of asset equally over its useful life?? Or do we need some other methods??
Well, depreciation can be provided for using various method one of which is mentioned in the question above. When we distribute cost of asset over its useful life equally the method is called Straight Line Method for providing depreciation.
Depreciation is a important consideration for any finacial statement. Its presence in finacial statement is abosolute for financial statements to give correct financial position of the organisation.
Now, when it is clear what is depreciation, question arises how is it calculated? Do we simply spread the cost of asset equally over its useful life?? Or do we need some other methods??
Well, depreciation can be provided for using various method one of which is mentioned in the question above. When we distribute cost of asset over its useful life equally the method is called Straight Line Method for providing depreciation.
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