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Why do Companies use to accumulate depriciation rather to deduct from particular assests? Reason?

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Question added by BILAL IQBAL , Officer Financial Controller , Union National Bank
Date Posted: 2014/04/04
SHEILA KRISHNAN
by SHEILA KRISHNAN , Global Credit Manager , Associated Foreign Exchange

The reason why depreciation is accumulated separately in a provision account rather than deducting directly from the cost of an asset is to ensure adequate audit trail. Fixed Assets are taken into the balance sheet at historical cost and the historical cost can be traced to the original invoice. The depreciation is then computed yearly to ensure the wear and tear is accounted for. This wear and tear is however not deducted directly from the hostorical cost due to the reason above. Both the debit and credit values are therefore brought forward in the Balance Sheet until a revaluation of the asset is carried out or the asset is disposed. 

SREEDEVI SUNILKUMAR
by SREEDEVI SUNILKUMAR , Business finance officer , Emirates Airline

 the purpose of the accumulated depreciation account is to reduce the carrying value of an assets to reflect the loss of value due to wear, tear, and usage. Companies purchase assets such as computers, copy machines, buildings, and furniture, all of which lose value each day. This depreciation loss must be accounted for in the company's financial statements in order to give shareholders the most accurate portrayal of the economic realty of the business.

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