Depreciation Technology

Depreciation technology is the process of spreading across the reduction in value of the asset across its useful life. Assets such as plant, equipment and machinery diminish in value owing to constant wear and tear and because of the presence of newer products on the market.

Function

Companies depreciate their assets with the intent of showing them at their present market values. Otherwise, the financial statements would have continued to record their value at the price for which they were bought. Over the years, the value of the assets reduces drastically, and when they stop functioning, the company would have suffered mammoth losses.

Features

The "provision for depreciation" is tax-exempt, which means the company does not have to pay taxes on the money written off. Also, the company's financial statements at all points in time reflect only the true values of the assets.

Types

There are several means of depreciating assets. Companies choose the method that is best suited to them after evaluating the nature of the asset, its productive life, its usage levels and the costs. Commonly used methods include the straight-line method, declining method, double declining method, sum of years method and units of production method.

References

• Investopedia: Depreciation
• Accounting Coach: Depreciation