In today's article, we will know about What Is Depreciation In accounting Why does a company charge Depreciation on its Assets if Depreciation is not charged on the Assets of the company, then what is the difference between the Company's Profit and Loss A/c and its Balance Sheet, then in today's article these are You will understand everything.

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What Is Depreciation In accounting?

Depreciation is known as loss in Hindi. Depreciation is the decrease in the value of an asset. There are many reasons why this deficiency occurs. With the passage of time, when some assets become old, wear and tear, that is, some wear and tear or out of fashion and due to the introduction of new technology, there is a shortage. All these reasons reduce the value of assets. If any new assets have been purchased for business and it is kept only, it is not being used in business, still there will be some drawback in it because the technology of machines is always changing. This means that the value of any new asset is high and as it becomes old, its value decreases.

Depreciation Meaning 

When we use any asset, there is a decrease in that asset, and whatever reason that shortfall has come, we call it Depreciation. Whatever the assets of the business, machinery, furniture, or any equipment, they all have a life and for the same number of years we can use those assets well, then gradually it starts to malfunction or decrease. Like if we buy a new bike which is 50,000 ₹ and we run it for 5 years and if we resale it then we will not get as much money as we bought that bike, that is because last many years Since we are driving it due to which its value has decreased, that bike is now out of date, its model is out of date, its tires are worn out, there are many such things which have reduced its value, so Now we can get only 20,000 ₹ for that bike. So this is called Depreciation.

Depreciation for business is an expense that is charged to itself, and like other expenses, it is not paid to anyone. Just as other expenses are shown in the Debit side of Profit and Loss A/c, similarly depreciation of assets is also removed and shown in Profit and Loss A/c. We do this so that the Profit and Loss A/c can be known accurately because Depreciation is also our expense and if we do not charge it then the Net Profit will not show correctly.

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Conditions for claiming depreciation

In order to get the exemption of depreciation from the income of any business or profession, certain conditions must be fulfilled.

These are the conditions -

The owner of the assets must be the taxpayer who is claiming the exemption (whether the owner of the whole or part of the asset)

That property should be used for the business or profession of that taxpayer. If a property is 50% for business and 50% for domestic use, then only 50% of its depreciation will be allowed.

Depreciation is not imposed on any land, so it cannot be exempted.

If there is more than one owner of an asset, they can claim depreciation exemption for their respective share.