Question

Explain briefly about
1. Depreciation
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Answer 1

Answer:

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1. The reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible or not value is called depreciation.
2. Depreciation allows a portion of the cost of a fixed asset to the revenue generated by the fixed asset. This is a mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use.

Example:-

If a delivery truck is purchased by a company with a cost of Rs. 100,000 and the expected usage of the truck are 5 years, the business might depreciate the asset under depreciation expense as Rs. 20,000 every year for a period of 5 years.

I hope you have understood the ans

Answer 2

The reduction in the cost of a fixed asset due to wear and damage is acknowledged as depreciation.

Explanation:

 1. Depreciation in brief

• Fixed assets consist of assets like machinery, equipment, plants, furniture, land, etc.

• Land is a fixed asset, but its value never becomes diminished. Instead, the fact is just vice versa with land. The older the land, the higher it costs.

2. Depreciation with an illustration

Suppose ABC Limited acquired a van for transport purposes in the business. After a few months, the firm concluded to sell the old van and purchase a new truck. While selling, the company will know that the van’s selling cost won’t be the same as its buying cost. This is due to depreciation.

The use and wear and tear of the van contributed to its depreciated cost.