Depreciation & its Accounting
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Define depreciation.
Systematic allocation of fixed asset cost over useful life due to wear, time, or obsolescence.
Is depreciation a cash expense?
No, depreciation is a non-cash expense; no actual cash outflow occurs.
Which assets are NOT depreciated?
Land (indefinite life); intangibles are amortised, not depreciated.
What is historical cost in depreciation?
Purchase price + freight + duties + installation + costs to bring asset to working condition.
Under SLM, on what is depreciation calculated?
On original cost, not on book value; same fixed amount charged every year.
What is the main disadvantage of SLM?
Ignores rising repair costs in later years; does not reflect early-year productivity.
Under WDV, what is the depreciation base each year?
Net book value at beginning of year (cost minus accumulated depreciation).
Why is WDV preferred under Income Tax Act?
Mandated under Section 32 (IT Act 1961); matches higher early productivity with higher depreciation.
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