Depreciation
Depreciation is the amount of money an asset losses it's value yearly.
Very large number of things we buy for large amounts of money and which we use for years eventually get used up.
For example a motor vehicle, is an expenditure that begins from the moment we acquire an asset and only ends with its disposal.
This cost must be worked out yearly. Both all assets reduce in value.
For example land may even increase in value over a period of time. The amount of reeducation is reduced over its useful life.
Depreciation is calculated by two methods straight line method or reducing balance method.
Straight line method , each year an equal amount is written off to the profit and loss account calculated by taking the purchase price less the residual value divided by number of years.
The reducing line method a small amount is written off each year so that the asset is never completely written off. This is appropriate where an asset value is mainly in the early years of its ownership but then it is used for years.
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