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Why depreciation is charged in P&L Account?
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Answer Posted / harika r
I would say the purpose of charging depreciation to P & L
a/c are
1. Unless a proper charge on account of depreciation is
included in P & L a/c, the true cost of manufacture of
different products will not be ascertained.
2. Depreciation is an expense incurred for earning profit,
which is similar to the hire of an asset, the only
difference being that in one case the amount is paid to an
outsider while, in the other, it is kept in the entity
itself.
3. If depreciation had not been charged, the net income
would have been overstated over the years of the life of
the asset, and if the same was withdrawn or distributed as
dividends, the business would have no funds for the
replacement of the asset.
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