Depreciation of Business RandD Capital †Free Samples to Students

Question: Discuss about the Depreciation of Business RandD Capital. Answer: Introduction: Depreciation is the amount which is charged as an expense in the statement of profit and loss. It is the amount which is charged for the loss of wear and tear of the assets of the company. This loss of wear and tear is generally caused by few factors which include the method of usage by the company, the change in fashion and obsolescence and so on. Depreciation is the non cash item and it usually provides the material effect. Cost of the Asset Cost of the asset is the amount equivalent to the amount paid for the acquisition of that asset and bringing that asset to the present location and condition. The cost includes the purchase price of the asset which is paid to the vendor, the amount of taxes, duties and other similar levies paid to the government authorities and the amount of freight and insurance incurred to bring the asset to the location where the assets are required to be placed and from that place the asset is put to use (Li, 2016). Useful Life of the Asset The useful life of the asset is defined as the life which the asset will have for the coming future years. The useful life is generally expressed in the number of years. The Corporations Act, 2001 read with the accounting standards have prescribed the useful lives of the asset which every company has to follow. The management of the company is required to decide the useful life of an asset keeping in consideration with the provisions of the accounting standard and in case any deviation is there then the company is required to disclose the same fact of the depreciation with the reasons for adopting the different useful life for that particular asset. On the basis of this useful life only the rate of depreciation or the amount of depreciation is calculated and written off during the year so as to arrive at the net carrying amount as per the requirements of the accounting standards. Scrap Value of the Asset - The scarp value of the asset is defined as the value which the company will receive at the time of expiry of the useful life of the asset and is equivalent to the amount which the asset will fetch in the open market at the time of the end of the useful life of the asset (Rus, 2016). The scrap value is the third and last needs which are considered as the integral part for calculating the depreciation of the first year. The determination of the scrap value totally depends upon the discretion of the management and the management of the company shall make the judgment with professional care. In this way, the afore said three requirements are the basic requirements for the calculation of the depreciation for the first year and subsequently the depreciation will be calculated with the available figures. References Li, W.C., (2016),Depreciation of business RD capital. National Bureau of Economic Research (No. w22473). Rus, L., (2016), Accounting, analysis and auditing of information regarding tangible assets in the romanian economic entities.Annales Universitatis Apulensis: Series Oeconomica,18(2), p.86.