Depletion of Fixed Assets

Financial Accounting SSS1 Third Term


Depletion of Fixed Assets

Performance Objectives

  1. What is Depreciation of Fixed Assets


Depreciation is the systematic reduction in the recorded cost of a fixed asset.  Examples of fixed assets that can be depreciated are buildings, furniture, leasehold improvements, and office equipment. The only exception island, which is not depreciated (since land is not depleted over time, with the exception of natural resources). The reason for using depreciation is to match a portion of the cost of a fixed asset to the revenue that it generates; this is mandated under the matching principle, where you record revenues with their associated expenses in the same reporting period in order to give a complete picture of the results of a revenue-generating transaction. The net effect of depreciation is a gradual decline in the reported carrying amount of fixed assets on the balance sheet.

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