Asset Depreciation

Asset Depreciation:

Asset depreciation is an accounting technique for charging the cost of a fixed asset as an expense to the profit and loss accounts of the years that benefit from its use. Asset depreciation has many different approaches within many organizationswhen it comes to IT asset depreciation. Depending on the method used it can cause artificially high or low changes to the profit and loss section of the accounts.

Depreciation is governed by accounting standards. The standards do not require any particular method of asset depreciation to be adopted. This, and the estimated life of the asset, is left to be determined by the business person.  When the asset is eventually sold, the proceeds of sale are deducted from its book value.

Asset depreciation may be a simple concept, but inappropriate methods, and overestimation of asset life, can seriously distort both profit and loss accounts and budgets. Attempts to avoid 'loss on disposall can sometimes even have serious operational effects, by (for example) inhibiting the acquisition of possibly much-needed replacement systems.