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“for depreciation, another misconception is that deprecation is provided so that an asset can be replaced at the end of useful life.This is not the case
If prices are rising,the replacement cost of the asset will exceed the amount of depreciation provided”.please,clarify or simplify this rule for me
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Depreciation expense does not represent a cash transaction, but it indicates how much of an asset’s value has been used up over time. Depreciation is an accounting convention that allows a company to write-off the value of an asset over time, but it is considered a non-cash transaction.
in that case,”if prices are rising,the replacement cost of the asset will exceed the amount of depreciation provided”.this expression is correct??
@suleymanabuzerli said:
in that case,”if prices are rising,the replacement cost of the asset will exceed the amount of depreciation provided”.this expression is correct??If you buy an asset for $500,000, it has a useful life of 5 years and a residual value of $50,000, after 5 years you will have posted $450,000 of depreciation. However, if inflation is say, 3%, that asset might cost $580,000 5 years later. So the cost of the replacement asset is higher than the depreciation provided on the old asset.
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