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Is Depreciation an Operating Expense

Sir, please clear my confusion about DEPRECIATION....

Is depreciation an operating expenses? If yes then how and if no then why we assume depreciation as operating expenses while calculating operating ratio.

Sir please clear my confusion ....]

THANKS


Ritesh Garg from India

Dear Ritesh Garg! Before to know the answer of this question, you should know the proper meaning of operating expenses. Operating expenses are those expenses which are necessary for operation of business. For example, we have retail business. For buying the goods on wholesale, we have to pay the travel cost. We have to pay electricity bill. We have to pay property tax. If we are doing small advertising, we have to pay for this. Like this, there are lots of expenses which we have to pay if we have to operate our retail business.

Now, we have to decide whether depreciation is our operating expense or not. Depreciation is the decrease in the value of any fixed asset. If we use these assets for the operation of business, value of fixed asset will decrease. The measurement of this decrease is depreciation. So, depreciation is our operating expenses because it is totally association for operation of business. We normally say, by using in the business our building depreciates 10%, furniture 15% and vehicle 20%. Income tax law also accepted it as operating expense but its rates are different for measuring annual depreciation. If we have to take the depreciation deduction, we have to deduct it from our total incomes as per the rates of law.

Some person may argue that we do not pay this expense. We can explain them that we have already bought the fixed asset which is our capital expenditure not operating expenditure and which we have bought by paying money. But when we will use it, it will convert into operating expenses. All the Fixed assets's value (except land) will decrease when we will use them for operation of business.  

Comments

: 1
  1. 1st shrawan- 2074 : furniture purchase for Rs 100000
    1st Magh-2074: Addition was made to the extent of Rs

    20,000

    1st Kartik - 2075: Further additional was made of Rs

    12,800

    1st Paush -2076: sold for Rs 17,850 the furniture purchased on 1st Shrwan

    Depreciation charged @10% per annum on original cost/ Straight line Depreciation method

    Required: Furniture A/C for three years.
    First, I need to calculate the depreciation for each year and then create the Furniture A/C for three years.
    In given direction
    I am plugging this equation into my calculator: 100000 * 0.1

    The result of this calculation is: 10000.0

    Based on the transactions provided, here's the Furniture Account for three years using the Straight Line Depreciation method at a 10% annual rate:

    Year 2074:
    - Initial furniture purchase: Rs 100,000
    - Depreciation: Rs 10,000 (10% of 100,000)
    - Net furniture value: Rs 90,000

    Year 2075:
    - Additional furniture purchase: Rs 20,000
    - Total furniture value: Rs 110,000 (90,000 + 20,000)
    - Depreciation: Rs 11,000 (10% of 110,000)
    - Net furniture value: Rs 99,000

    Year 2076:
    - Additional furniture purchase: Rs 12,800
    - Total furniture value: Rs 111,800 (99,000 + 12,800)
    - Depreciation: Rs 11,180 (10% of 111,800)
    - Net furniture value before sale: Rs 100,620
    - Furniture sold: Rs 17,850
    - Net furniture value after sale: Rs 82,770 (100,620 - 17,850)
    Make on farmat where
    Dr Cr
    Date | particulars | amount | Date | particulars | amount

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Accounting Education: Is Depreciation an Operating Expense
Is Depreciation an Operating Expense
Accounting Education
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