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Depreciation is the term used when describing the decline in value of something. It also represents the ownership and consumption of something useful life. In accounting terms, this is limited to the value of a fixed asset during its useful life. Examples of fixed assets are fixtures & fittings, vehicles and equipment.
The reasons for depreciation are:
* New models - in today's modern world, there is new technology that compliment the new generation. This makes things more efficient.
* Wear and Tear - equipment eventually gets worn out to an extent that it is no longer worth fixing and needs to be replaced (upgraded) in order to not be labelled as 'old fashioned'.
Fixed assets are shown in the balance sheet and are valued as part of the business. To produce accurate accounts, a business must show that the value of fixed assets goes down over time.
The purpose of depreciation is to match the cost of a fixed asset that has a life of more than a year to the revenues earned from using the asset. The reason why depreciation is used is to
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