Discuss the importance of depreciation

Discuss the importance of depreciation - Discuss the...

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Discuss the importance of depreciation Title: Discuss the importance of depreciation expenses. Depreciation as a concept and in practice plays a very important role in a company’s cash flow hence in funding. The reason’s are basically two, firstly because depreciation is a way of self finance for an organization and secondly because is a way of decreasing taxes that the government claims as the company doesn’t have to pay taxes on depreciation which consequently enlarges the cash flow of the company. As a term depreciation in accounting is the process of allocating the cost of a capital asset over the period of its useful life. Depreciation takes into account the decrease in the service potential of capital assets invested in a business venture, resulting from such causes as physical wear and tear in ordinary use, deterioration by natural elements or obsolescence caused by technological changes. Basically depreciation is a loss in value or a diminishment in market price of a good always taking the time factor into account. Depreciation is a rate of change in value in an asset fixed or current compared to the present value of that asset. For example if a company purchases machinery for the production of
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This note was uploaded on 05/21/2011 for the course ACCT 101 taught by Professor All during the Spring '11 term at Kaplan University.

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Discuss the importance of depreciation - Discuss the...

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