Business – 10.1 Financial statements – Depreciation | e-Consult
10.1 Financial statements – Depreciation (1 questions)
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Depreciation is recorded to allocate the cost of a tangible fixed asset over the periods it is expected to generate economic benefits. This systematic allocation ensures that the income statement reflects a more accurate matching of revenue with the expense of using the asset.
Impact on profit: By charging depreciation expense each period, the reported profit is reduced, giving a more realistic view of earnings after accounting for asset wear and tear.
Impact on tax: In most tax regimes, depreciation (or a tax‑allowed equivalent such as capital allowances) is deductible, lowering taxable profit and therefore reducing the amount of corporation tax payable.