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Objects of providing for deprecation

1. To find out net profit or loss for an accounting period, we add the revenues of that period and deduct all the expenses incurred in that period in earning those revenues. One such exp is the portion of the cost of fixed Assets that has expired during the year i.e. depreciation.


2. To present a true and for view of the state of affairs of the business. The assets must be valued correctly on the Balance Sheet. Unless depreciation is charged, the assets may be overstated in the Balance Sheet.

3. A continuous decline in the value of the assets over several years may lead to a decision to replace the assets. If depreciation is not charged and profit available for distribution is not reduced, it is quite likely that the whole of the profits may be withdrawn during the life of the assets.

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