Mr. Raju running a soda manufacturing company is of the view that ‘�

1.	Mr. Raju running a soda manufacturing company is of the view that ‘‘no depreciation need be provided on the fixed assets because he does not pay any amount as depreciation to anyone.” As a commerce student, how will you respond to his statement? State reasons.
Answer» The need for providing depreciation in accounting records arises from conceptual, legal and practical business considerations. Though depreciation is not paid it has to be identified as important business expenditure. The consequence of not providing depreciation as 1. Timely replacement of fixed assets become impossible. 2. Cost of production cannot be exactly calculated. 3. Paying dividend out of capital.

Mr. Raju running a soda manufacturing company is of the view that ‘‘no depreciation need be provided on the fixed assets because he does not pay any amount as depreciation to anyone.” As a commerce student, how will you respond to his statement? State reasons.

Answer»

The need for providing depreciation in accounting records arises from conceptual, legal and practical business considerations. Though depreciation is not paid it has to be identified as important business expenditure.

The consequence of not providing depreciation as

1. Timely replacement of fixed assets become impossible.

2. Cost of production cannot be exactly calculated.

3. Paying dividend out of capital.

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Mr. Raju running a soda manufacturing company is of the view that ‘‘no depreciation need be provided on the fixed assets because he does not pay any amount as depreciation to anyone.” As a commerce student, how will you respond to his statement? State reasons.

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