Investment Appraisal: Treatment of Tax Allowable Depreciation (TAD)

[@abbasboro]

Depreciaition is not money set aside for replacing an asset, wrong

[@universalprimetutorials]

Depreciation is accounting principle emanating from the prudence concept where organizations reduce the useful economic life of an asset over a period. The general idea behind depreciation is make available enough money to replace the asset when its useful economic life ends. Thus, depreciation is akin to setting aside money to replace an asset

[@abbasboro]

@@universalprimetutorials Assets are depreciated applying the accrual concept not prudence concept, if you go and revise IAS 16 there is no any mentioning of money being set aside to replace the asset, completely wrong idea

[@universalprimetutorials]

@@abbasboro The objective of IAS 16 is to prescribe the accounting treatment for property, plant, and equipment. The principal issues are the recognition of assets, the determination of their carrying amounts, and the depreciation charges and impairment losses to be recognised. The depreciation charges are treated as expense included in cost of sales. please kindly tell me whether depreciation will not reduce the available profit of an organisatiion. Invariably the depreciation expense in cost of sales is an expense but instead of treating it as an outflow, it is rather an inflow to an organisation. thus, the premise of the statement depreciation is money set aside for replacing an asset. Besides i was teaching finance not accounting. If i was teaching accounting, i wont explain it the way i did in the video. Thank you

[@abbasboro]

@@universalprimetutorials Sir.. I agree with most of you have just said, but i dont get the idea that depreciaition is money set aside to replace an asset. I study accounting and through the Standards i have never see this.

[@joshuaBOADI]

@@abbasboro In the preparation of cashflow statement, depreciation is treated as an inflow to an organisation added to the net profit for the year. So depreciation expense is an inflow rather than outflow. So the depreciation amount goes back to an organisation which they can use to repalce the asset when its useful economic life ends