Describe the need of Deprecation.

Need for Deprecation

• Matching of Cost and Revenue:- The rationale of the acquisition of fixed assets in business operations is that these are used in the earning of revenue. Every asset is bound to undergo some wear and tear, and hence lose value, once it is put to use in business. Therefore, depreciation is as much the cost as any other expense incurred in the normal course of business.
• Consideration of tax: - Depreciation is a deductible cost for tax purpose.
• True and fair financial position:- If depreciation on assets is not provided for, then the assets will be over valued and the balance sheet will not depict the correct financial position of the business.
• Compliance with Law:- There are certain specific legislation that indirectly compel some business organisation like corporate enterprises to provide depreciation on fixed assets