User:Thotungallbabu

Accounting for Depreciation

Depreciation is a decline in the value of asset because of its continuous use. Machines are subject to wear and tear. Plants and buildings are dilapidated over a period of time. When we talk of depreciation we refer to fixed assets only. Current assets do not come under depreciation. Fixed assets require huge investments. Their usage is spread over a number of years. But their efficiency will diminish by use and wear and tear. So the decline in their value should be allocated to cost and charged to profit and loss account of the business or industry. The decline in the value of fixed assets effects the balance sheet of the company. The allocation effects the net profit of the company