You are here

Depreciation

6 May, 2015 - 17:39

All plant assets, except land, depreciate. Factors that contribute to depreciation are physical and functional. Physical depreciation arises from the actual use of a plant asset. Functional depreciation is due to obsolescence factors such as technological advances and less demand for a product. The purpose of recording depreciation is to show the decline of usefulness of an asset, not a decline in its market value. Depreciation merely reduces the value of plant asset accounts, it does not reduce the cash account or affect cash flows.