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Title Discuss the importance of depreciation expenses The concept and practice of depreciation plays an integral part in a companys cash flow situation and funding The two main reasons this occurs are that firstly depreciation is a for of self finance and secondly because a company does not have to pay taxes on depreciation hence excluding taxation from a cash amount which enlarges the cash flow of a company As a term depreciation is defined as a loss in value a diminishment in market price always taking the time factor into account because the view point of depreciation is always a rate of change in value in an asset fixed or current compared to the present value of that asset If a company purchases or rents machinery or any sort of equipment used for production purposes it has to take into account the purchased or rented goods production life span meaning that everything has a certain period of time in which it contributes to production before it is rendered useless I use the term useless in the sense that what is produced does not bring profit to the company due to wear and tear resulting in production time loss and a lower standard of quality The time based usefulness of an asset of course varies depending on what the asset is If it is a van for example its usefulness might be seven years before the van needs replacing but if it is a building we are talking about its usefulness may be forty years For example is a JCB digger were to be purchased in 2000 at the value of 15000 and its productive life span were to be eight years this would mean that in eight years time the digger purchased would cease to be of any productive use to the company which purchased it If it were to be resoled in 2008 though its value would have depreciated drastically due to
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