If depreciation reduces profits,reduces value of assets and also reduces capital of the proprietor, then why do enterprises provide for depreciation?

Open in App

Solution

Financial statement must show a true and fair view of the financial performance and position of the business. If depreciation is not provided, both fixed asset and profit will be shown at inflated amounts.

Suggest Corrections

Similar questions

Q. Depreciation is charged to reduce the value of asset to its market value.

Q. State with reasons whether following statements are True or False:
Providing depreciation in the accounts reduces the amount of profit available for dividend.

Q. An asset is subject to

10 %

depreciation on reducing balance method. If the book value of the asset as on

31.03.14

is Rs.

40500

. The annual depreciation for the year

2013 - 14

amounted to __________.

A fixed asset was bought for Rs. 5,000. Its accumulated depreciation is Rs. 3,000 and rate of depreciation is 20%. Calculate its depreciation expenses for the current accounting period using reducing balance method?

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.

Join BYJU'S Learning Program