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    gwapagirl40's Avatar
    gwapagirl40 Posts: 31, Reputation: 1
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    #1

    Nov 13, 2012, 09:05 PM
    Why recognize depreciation expense?
    Why is it that I am forced to recognize depreciation expense in my company's income statement when I know that I could sell many of my assets for more than I paid for them? I thought that the purpose of the balance sheet was to reflect the value of my business and that the purpose of the income statement was to report the net change in value or wealth of a company. It just doesn't make sense to penalize my profits when there hasn't been any loss in value from using the assets.
    paraclete's Avatar
    paraclete Posts: 2,706, Reputation: 173
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    #2

    Nov 14, 2012, 02:19 AM
    you always have the option of revaluing your assets. Assets excepting land have the characteristic that they loose value over time either because of wear and tear or because of obsolence. Depreciation recognises that dimunition in value and assigns each year a charge equal to the value dimished in that year. The purpose of doing this is not to overstate earnings and see profits distributed which leave no value in the business for replacement.

    Accounting for the changing value of money has always been a serious issue which comes to the fore in times of growth
    gwapagirl40's Avatar
    gwapagirl40 Posts: 31, Reputation: 1
    Junior Member
    		  
    #3

    Nov 15, 2012, 09:30 PM
    Quote Originally Posted by paraclete View Post
    you always have the option of revaluing your assets. Assets excepting land have the characteristic that they loose value over time either because of wear and tear or because of obsolence. Depreciation recognises that dimunition in value and assigns each year a charge equal to the value dimished in that year. the purpose of doing this is not to overstate earnings and see profits distributed which leave no value in the business for replacement.

    Accounting for the changing value of money has always been a serious issue which comes to the fore in times of growth
    Thank you!! I appreciate your help. Sorry, I tried to click helpful but it won't let me . I don't know why. It says I have to spread rumors.. don't know what that meant.
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