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The use of the asset will produce revenue s over a number of years. It is important to write offva portion bof the original cost against the revenue s the asset produces and measure the loss in value of the asset through use.
The charge to profits is known as depreciation. It is important to state at this point that depreciation does not provide for the replacement of the asset. Furthermore, it does not truly give a current valuation for the asset in the balance sheet-it is a process of allocation not valuation.
Depreciation implements the accruals concept by matching the cost of the asset to the revenues produced by its use.
In short depreciation is a method that distribute costs to the number of years that will benefit from the use of the asset
