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Fixed assets are used in business to derive benefits for more than one accounting period and not for the purpose of sale in the ordinary course of business. Fixed assets like plant and machinery etc. are used in the business for the purpose of production of goods or for providing useful services in the course of production. These fixed assets are utilized during operations of a business for a number of successive accounting periods. Value of such fixed assets decreases with passage of time and its utilization i.e. wear and tear or even due to obsolescence. Value of portion of fixed asset utilized for generating revenue must be recovered during a particular accounting year to ascertain true income. This portion of cost of fixed asset allocated to a particular accounting year is called depreciation.

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