account
This query is : Resolved
04 January 2010
Depreciation is a reflection of the loss value of an enduring asset over the period of its life time.
When we incur capital expenditure, we can't write it off in one year in the P and L Account because of the matching concept.
so the depreciation is calculated over the life term and that amount is debited to the P and L A/C>
E.g. A machinery purchased for Rs. 50,000. Life of 5 years.
So Rs.50,000 is not debited to P and L.
But Rs.10,000 (50,000/5) is debited to the P and L account each year for 5years as the revenues will be received for 5 years.
When we incur capital expenditure, we can't write it off in one year in the P and L Account because of the matching concept.
so the depreciation is calculated over the life term and that amount is debited to the P and L A/C>
E.g. A machinery purchased for Rs. 50,000. Life of 5 years.
So Rs.50,000 is not debited to P and L.
But Rs.10,000 (50,000/5) is debited to the P and L account each year for 5years as the revenues will be received for 5 years.
Heera Nahariya
(Expert)
04 January 2010
agree with the expert. It will clarify you better if you go through AS-6 issued by ICAI.
04 January 2010
In simple terms, depreciation is the evaluation of the wear and tear of capital goods.
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