Depreciation is the reduction in value in the fixed asset used in business due to use of the assets. under income tax there are various rates prescribes for changing depreciation on fixed assets.
for eg is machinery of 5lacs is purchased and depreciation rate is 15% then in first year 45000 depreciation wud be charged to pnl account and 455000 wud be the written down value if asset. again in subsequent year 15% dep wud be charged on 455000 and then wdv would be arrived after deducting depreciation.
Suppose the asset has a life of 8 years then at the end of year 8 what value remains is the residual value. ant amount which is received in excess/short of the residual value of asset is charged to profit
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