Answer to Question #146297 in Economics for mayuri

Question

1. Depreciation is the reduction in the usable value of fixed assets due to normal wear and tear of time. Depreciation is an indirect non — cash expenditure which is provided on SLM or WDV basis.

Rahul is new junior accountant with Hardwork Mills Private Limited he wants to understand normal depreciation differs from additional depreciation. As a tax adviser, guide him on the two concepts and discus the cases where additional depreciation is not allowed.

Answer 1

Depreciation expense, or normal depreciation is basically a nominal (non-permanent) account. It's on the income statement, not the balance sheet. Accumulated Depreciation is a permanent account on the balance sheet. Unless you dispose of assets, or or permanently retire them, the amount of your Accumulated Depreciation balance only keeps increasing and it's there forever.