Property, plant and equipment schedules template includes a line named as “Depreciation charge”. You may also have seen “Amortization” and simple “Depreciation” used. The meaning stays the same, so there’s really no difference in terms of which to use, but the questions “What this depreciation is?” still remains. So with this post I’ll try to answer to this very same question.
As mentioned in one of our previous posts about property, plant and equipment, with the initial recognition management gives an estimated useful life to an asset. In addition to useful life certain assets may in the eyes of management have a residual value, which can be collected from disposal of the asset. Usually such residual value is applicable in case of buildings or large machinery in which case the residual value is material to the financial statements. On lot of cases say for an example from disposal of a computer that operates you may collect some proceeds; however estimating them is really inefficient and not always precise. So, we have determined the estimated useful life and say the residual value as well. What happens next?
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