Accounting-Depreciation

RUNNING HEAD : DEPRECIATION

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Abstract

Deprecation is an applicable charge to the books of accounts to replace an asset in the future . It is useful for the management of a company to save tax and to increase cash flow , as the charge of depreciation does not cause a cash outflow unlike other expenditure . There are several methods to calculate depreciation , which will be discussed at length Every method has certain advantages over other methods , making each method as useful as another . The understanding

of the nature of depreciation and its usage can help an organization save taxes and increase cash flow substantially , which shall be studied in the following assignment

Introduction

Every business would need several assets , tangible and intangible current and fixed . One thing common to every asset , irrespective of its class is that it would lose its value , which it possesses today . While current assets might lose their value intrinsically by inflation , fixed assets would lose their value with every passing year , when you try to sell them . Whether the business tries to sell the asset or not , due to natural wear and tear it would need to replace the asset after a period of time , which is known as the theoretical life of the asset . If such a replacement cost has not been taken care of , there would be a great possibility that the company might be short of funds when it needs to replace the asset

The value reduction of the asset...