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The following are the four primary criteria to take into account while determining depreciation expense: the asset's price, The estimated asset salvage value, the asset's estimated useful life. When estimating an asset's useful life, obsolescence should be taken into account because it will change how depreciation is calculated.
The term "depreciation" in accounting refers to two different aspects of the same concept: first, the actual decline in fair value of an asset, such as the annual decline in value of factory equipment due to use and wear, and second, the allocation in accounting statements of the asset's initial cost to the periods in which it is used. The process of "writing down" or reallocating the cost of a tangible asset over the length of its useful life is called depreciation. Additionally, it alludes to a decrease in asset worth. For accounting and tax purposes, organizations depreciate long-term investments. The asset's loss in value and the technique of depreciating it have an impact on the balance sheet of a corporation or other entity.
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