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What are the purpose of depreciation?

Depreciation is a business expense.It should be charged to revenue irrespective of whether there is profit or loss. The object of charging depreciation are.

  1. To arrive at the true working result,net profit or net loss.
  2. To show the asset at its proper value, that is at cost less depreciation loss.
  3. To retain,out of profits, funds for the replacement of the asset at the end of its working life.
  4. In order to comply the law of companies act. You have to charge depreciation on the fixed asset as per rate provided.

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