Fundamental Library

Accumulated Depreciation
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Explanation: Depreciation is an accounting practice that spreads out the cost of tangible assets over their useful lifetimes. It reflects the gradual decline in the value of assets due to factors like wear and tear, obsolescence, or regular usage. This depreciation expense is recorded in the income statement, reducing the reported net income to reflect the portion of the asset’s value used up during the accounting period.

Moreover, the total depreciation expense incurred over time, known as accumulated depreciation, is shown on the balance sheet as a contra-asset account. This accumulated depreciation reduces the value of the related assets listed on the balance sheet, providing a more accurate representation of their current worth.

Imagine a company buys a delivery van for 50,000 rupees. They estimate it will last for 5 years before it’s worn out. Each year, they’ll subtract a bit of its value to reflect how it’s getting older and less useful. So, they divide the van’s cost by 5 years, which gives them 10,000 rupees a year. That’s how much they’ll subtract from the van’s value each year as a “depreciation expense.” After 5 years, they’ll have subtracted 50,000 rupees total, making the van’s value zero on their books. This reflects how the van’s value has decreased over time as it’s been used.

Example: TCS had a depreciation cost of 5,022 crore as of FY23. This indicates that TCS allocated 5,022 crore to account for the decrease in value of its tangible assets, such as buildings, equipment, and machinery, during the fiscal year. The depreciation expense of 5,022 crore is deducted from the company’s revenue to determine its net profit.

You can view the quarterly or annual Depreciation value for any company on Radar under the Quarterly Results or Yearly P/L sections.

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