explain depreciation reserve fund .
Answers
Depreciation reserve is a business fund in which the probable replacement cost of equipment is accumulated each year over the life of the asset. It can be replaced readily when it becomes obsolete and totally depreciated. It is the total depreciation charged against all productive assets as stated on the balance sheet. Depreciation reserve is also called accumulated depreciation. The charge is made to allow realistic reduction in the value of productive assets and to allow tax-free recovery of the original investment in assets
Answer:
Depreciation:
It refers back to the lower withinside monetary cost of the capital inventory over time. whilst constant belongings/capital inventory is in use, that is going down in cost because of ordinary put-on and tear mad unintentional damages. Furthermore. they pass down in cost. It is due to the fact they emerge as out of date or previous because of modifications in generation or alternates in demand. Thus. depreciation may be stated because of the lack of cost in constant belongings in use resulting from ordinary put-on and tear unintentional damages, and obsolescence. Hence, It may be called the intake of capital inventory or constant belongings.
In different words, the idea of depreciation refers back to the cost of constant capital or constant belongings that is used or fed on withinside the manner of manufacturing.
Concept of Depreciation Reserve Fund:
As we understand constant belongings are consumed or used at some point in the manner of manufacturing of very last goods. Thus, those belongings want to get replaced now and then due to depreciation. And, the alternative of constant belongings calls for the finances to finance them. For this purpose, the supply of finances is established on an annual basis. And, this provision made, is called a depreciation reserve fund.
Example:
Suppose a bit of equipment is bought for Rs.5,00,000. And, its anticipated existence is five years. Then, the yearly provision for finances to update the equipment after five years might be 5,00,000/5= Rs. 50,000. It is called a depreciation reserve fund.
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