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Need of providing deprecation

1. To ascertain true results of operation.

2.To present true and fair view of the financial position.

3.To ascertain the true cost of production.

4. To comply with legal requirements.

5. To accumulate funds for replacement of assets.

Factors determining the amount of deprecation

The amount of depreciation is based on the following three factors:-

(a) Historical cost of a depreciable assets implies the cost incurred on purchase installation commissionary and for addition to or improvements there of which are of capital nature.

(b)  Expected useful life:- If a depreciable assets implies either the period over which a depreciable asset is expected to be used by the entries passed or the number of production as similar units expectal to be obtained    from the use of the asset by the enterprise.

(c) Estimated residual value:-    of a depreciable assets implies the value expected to be realized on its sale or exchange on expiry of its useful life.

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