The rationale for depreciating assets in business is based on the reduction in their value over time due to wear and tear, with depreciation being treated as a non-cash expense that can lead to increased funds for capital formation. The rules for depreciation are consistent across all taxpayers, ensuring fairness. Additionally, the chosen method of depreciation can influence a company's revenue outcomes.

1. Asset Depreciation
2 2 unread replies. 2 2 replies.
Answer each of the following questions
What is the rationale for depreciating assets used in business? Do you agree with it?
Does the rationale have any implications on capital formation
Solution
1 ) Rationale for depreciating assets is that the depletion in the value of assets over the period of
time due to the wear and tear of the asset . It is said to be the cost of assets allocated in the
financial year according to the benefits generated by the use of the asset
2) Depreciation is a non cash expense and we traet as a expense that results in decline of profits
due to which there is an accumulation of funds in the company and therefore helps in capital
formation
3) Rules regarding depreciation are same for all the tax payers hence it does not favour any
single group of taxpayers
4)Revenue implications : The method of depreciation adopted by the company can impact
revenues . Depreciation amount will be different by any method