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This section deals with the determination of the cost of fixed assets; the allocation of this cost to appropriate accounting periods; the disposal of assets, and accounting treatment thereof according to the Accounting Standard VI of the Institute of Chartered Accountants of India. In the preparation of financial statements the depreciation of fixed assets has a special importance. It lies in the fact that depreciation involves relatively large amounts as expenses, which are crucial for the ascertainment of net profit and determination of the balances of fixed assets, which are to be shown in the balance sheet. Depreciation, in general, is concerned with the manner in which capital expenditure gradually converts into revenue expense for calculating the net income over a period of time.

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