Is is necessary to provide depreciation on a fixed asset of which the market value is higher than its book value. Why?

Dear student
 
Depreciation is decline in the value or fixed assets due to their constant use or obsolesce due to expiry of time.The gradual reduction or decline in the value of asset lead to a point when the assets will have no value .It needs to be replaced by another asset of a similar type. 
At such time it become necessary to produce another asset and to pay for the same.​ Therefore it is necesary to provide depreciation even if the market value is higher than the book value.

Regards

  • 1
yes, due to historical cost concept we have to provide depreciation.
for example if we bought a ready built shop for rs 100000/- and there after we are providing dep. 5% per annum coz there is wear and tear in shop due to regular use and passage of time and in future it may be necessary to rebuilt the shop. as we are not selling the shop why should we take new value of it may it be one crore.it is a secret reserve for business.
  • 2
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