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Depreciation is technically a method of allocation, not valuation, even though it determines the value placed on the asset in the balance sheet.
These may be specified by law or accounting standards, which may vary by country. Any business or income producing activity using tangible assets may incur costs related to those assets. One such cost is the cost of assets used but not immediately consumed in the activity.
For example, a depreciation expense of per year for five years may be recognized for an asset costing In accountancy, depreciation refers to two aspects of the same concept: This expense is recognized by businesses for financial reporting and tax purposes.
Depreciation expense generally begins when the asset is placed in service. This is usually done in a rational and systematic manner.
The former affects the balance sheet of a business or entity, and the latter affects the net income that they report.
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