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For example, a depreciation expense of per year for five years may be recognized for an asset costing In determining the profits net income from an activity, the receipts from the activity must be reduced by appropriate costs.

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The business then records depreciation expense in its financial reporting as the current period's allocation of such costs.

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Generally this involves four criteria:

For example, a depreciation expense of per year for five years may be recognized for an asset costing Methods of computing depreciation, and the periods over which assets are depreciated, may vary between asset types within the same business and may vary for tax purposes. One such cost is the cost of assets used but not immediately consumed in the activity.

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There are several standard methods of computing depreciation expense, including fixed percentage, straight line, and declining balance methods. The former affects the balance sheet of a business or entity, and the latter affects the net income that they report. Home Adam smith capital asset depreciation durable good economics goods non-renewable resource physical capital production service stock. Depreciation is any method of allocating such net cost to those periods in which the organization is expected to benefit from use of the asset. This expense is recognized by businesses for financial reporting and tax purposes.

2 comments
  1. The asset is referred to as a depreciable asset. The business then records depreciation expense in its financial reporting as the current period's allocation of such costs.

  2. One such cost is the cost of assets used but not immediately consumed in the activity. If an asset is expected to produce a benefit in future periods, some of these costs must be deferred rather than treated as a current expense.