Discuss The Importance Of Depreciation. :: essays research papers fc

Title Discuss the importance of dispraise expenses.Depreciation as a concept and in practice plays a very important role in a comp anys cash flow hence in funding. The reasons argon 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 g everywherenment claims as the company doesnt have to pay taxes on depreciation which whence 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 divine 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 valuate or a diminishment in grocery price of a good always taking the time agentive role 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 pattern if a company purchases machinery for the production of a certain product the care must take under consideration the equipments life cycle, centre that this machinery has a certain period of time in which it can digest to the production before it becomes useless. Useless in a sense of a newer machine get out be invented in some age which will be probably faster or more capable to call down better quality. The time factor of course always varies depending on the asset. For exemplification the usefulness of a computer may be three years before it needs replacing, as for a building may be fifty years.A Mercedes van for instance in year 2000 could be purchased at the value of 13 million drachmas and its productive life bitstock before it needs to be replaced will probably be 8 years. After the 8 years the van purchased would cease f rom being of any productive use to the company and if it needs to be resoled its market value would have depreciated drastically due to the time fade from the initial purchase. Its devaluation is its year zero value less an annual percentage of the devaluation process updated annually. that depreciation doesnt apply only to current assets but overly is applicable to fixed assets as well.