# Essay On Depreciation

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Depreciation
Depreciation is the analytical reduction in the recorded cost of a fixed asset. There are many examples of fixed assets that can be depreciated such as cars, houses, buildings, leasehold improvements, plant equipment, furniture and leasehold improvements with the only exception being land. Land is not depreciated since over time land is not depleted only with the exception of natural resources. Depreciation is used to match an amount of the cost of a fixed asset to the revenue that it generates. This can be mandated under the matching principle in which you document revenues with their correlated expenses in the same reporting period in order to create a clear image of the results of a revenue-generating transaction. The net outcome of depreciation is an eventual decline in the documented …show more content…
For example some of the most common methods used nowadays for calculating depreciation are straight-line, units-of-production, sum-of-years digits, and double-declining balance, and accelerated depreciation method. Straight-line depreciation is known to be the most widely used method for depreciation for many years largely due to its simplicity and is easily understood. The method of straight-line depreciation is easy, basic lyrics a company charges an equal amount of the asset’s original cost to each accounting period. The straight-line formula used to calculate depreciation expense is: (asset's original cost - the asset's estimated salvage value) / the asset's useful life. An example of how to calculate depreciation expense under the straight-line method – assume you bought a piece of plant that the is valued at €10,000, has a residual value of € 5,000, and a useful life of 5 years. Its depreciation expense for year 1 is €1,000 (20,000 - 5,000 / 5).
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