Question

What is the principal purpose of charging depreciation on non-current assets?

Answer 1

Answer:

The principal purpose of charging depreciation on a non current asset is based

-not on any direct relation to the market value

-not on the current realizable value.

This depreciation can be charged by directly spreading the cost of non-current assets. This is done over that assets useful life. Thus the depreciation can be calculated based on three methods. The most used being, straight-line depreciation method.

According to the straight line method of depreciation, there is a subtraction done in the asset's value from its cost. Next this calculation is divided by the total number of years in its useful life.

Answer 2

The principal purpose of charging depreciation is done to match or show the real value of the fixed asset during a specific time period. It shows the economic benefit of the asset over the end of its useful life. This is because charging depreciation on a non-current asset is not concerned with any direct relation to the market value.  

Explanation:

• The process of charging depreciation has no direct relationship to the present realizable value of the assets.  

• In fact, depreciation can still be charged even if the market value of an asset is increasing as depreciation is used for utilizing the cost of a non-current asset over its useful life.  

• Depreciation reflects the correct value of the fixed assets that gives a true and proper view of the ‘financial position’ of the organisation.

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