Due to physical and moral wear and tear, the cost of basic resources is gradually decreasing. In this regard, the accounting department introduced a systematic distribution of the amortized amount of all major non-current assets during the period of operation. The depreciation object is the cost of fixed assets.
Depreciation is the systematic transfer of the value of fixed assets as they wear out. So why do you need depreciation? There are several opinions on this matter. Some experts believe that using the amortization process, you can create cash flows that will subsequently be directed to the restoration of fixed assets. Other financiers see depreciation as a way to gradually distribute large expenses over several periods on an accrual basis. Any employee every month gradually reduces the cost of fixed assets: devices, machines, equipment. Moreover, this happens until the time when the cost of an item or product reaches zero. And if the item is written off in one month, then a huge loss for the company can turn out in the reporting period. While the product is working, the enterprise is in profit, and as soon as it breaks down, out of order, worn out, the company incurs only losses. In addition, if we consider depreciation from the point of view of shareholders, then they are better off deceiving themselves a little during, for example, a year, than to see the staggering truth about losses in one month. And there are situations when, after looking at the report, where the entire amount of the worn-out item is indicated, they will not be able to understand why the company worked steadily all the time, and in this reporting period it received a colossal loss. Some financiers can use depreciation to help a business pay less income tax. This is due to the fact that the amount of depreciation does not always coincide with the actual physical wear and tear of the product. If this amount is greater, then the income tax will be much less. Do not forget that the accounting standard also requires depreciation. And with the help of such a procedure, you can get a lot of benefits for the enterprise.
