Why Do We Need to Account for Depreciation?

Here is why we need to provide depreciation:

●      To ascertain the true profit during a year, it is desirable to charge depreciation.

●      To ascertain the true value of assets, depreciation should be charged. Without calculating the correct value of assets, we cannot ascertain the true financial position of a company.

●      Instead of withdrawal of overstated profit, it is desirable to make provisions to buy new assets to replace old asset. The accumulated value of depreciation provides additional working capital.

●      Depreciation helps in ascertaining uniform profit in each accounting year.

●      Depreciation allows to take the advantage of tax benefit.

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