Depreciation - Repairs - Fluctuations
Depreciation is not meant to replace, avoid, or postpone repairs (i.e. spending on repairing the fixed asset) but is in addition to repairs. Also, fluctuations in the price of the asset are not to be taken to affect the amount of depreciation during successive periods. Depreciation is a reduction in the book value of tangible fixed assets, the reduction being gradual, of a continuing nature and permanent. On the other hand, fluctuation happens, in a majority of cases, all of a sudden, and hence, is neither gradual nor continuing, and also not permanent, since the change in the market value of an asset may fluctuate involving either reduction in or appreciation of value. Largely again, fluctuations are more often relevant to floating or current assets whereas depreciation is associated with tangible fixed assets.
Exclusions
Depreciation accounting is not applicable to
- forests and other regenerative resources;
- expenditures on the exploration for, and extraction of, minerals, natural gas, oil and similar non-regenerative resources;
- expenditures on research and development; and
- goodwill - (which is intangible).
No comments:
Post a Comment