Depreciation is a non-cash expense which should not be provided for in the profit and loss account. Comment.

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Solution

It is not correct to say that depreciation is a non-cash expense should not be allowed for in the books. If depreciation is not provided for, it will result in an overstatement of assets and profits. It is also not in agreement with the matching principle which says that expenses for a period should be matched with the revenues.

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"In case of a long-term asset, repair and maintenance expenses are expected to rise in later years than in the earlier year." Which method, is suitable for charging depreciation if the management does not want to increase the burden on profits and loss account on account of depreciation and repair.

Q. Depreciation is a non-cash expense.

Q. State whether the following Statements are True or False

1. There is need to provide depreciation if it is maintained with care.
2. Depreciation cannot be provided in case of loss in a financial year.
3. A Specific reserve can be created for any purpose.
4. Capital Reserves are not freely distributed as profits.
5. Under the written down value method depreciation is calculated on the original cost of an asset.
6. Depreciation is the process of valuation of asset.
7. Depreciation is a non-cash expense.
8. Secret reserves are disclosed in Balance Sheet.
9. General reserves is created to meet contingency liability.
10. Depreciation is charged only on fixed asset.

Non-cash expenses like depreciation, depletion & amortization expense are _______ to net profit before tax under indirect method.

Q. ___account will be credited on transferring depreciation to profit and loss account.

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