Q.What are the objectives of providing Depreciation ?

Depreciation is provided to compute correct profit, present a true and fair financial position, provide replacement funds, ascertain accurate cost, and meet legal requirements.

Objectives of providing depreciation:

1. To ascertain the true profit or loss: Depreciation is an expense of using the asset; charging it matches cost against the revenue the asset helped earn, so profit is not overstated.
2. To present a true and fair financial position: The asset is shown in the Balance Sheet at its reduced (written-down) value, not at its original cost, giving a realistic view.
3. To provide funds for replacement: Retaining depreciation as a charge builds up resources to replace the asset when its useful life ends.
4. To ascertain the accurate cost of production: As depreciation is part of the cost of using assets, including it gives the correct cost of goods produced. …