For replacement of assets does depreciation generate funds
For replacement of assets does depreciation generate funds?
Expert
Yes, depreciation produces funds for replacement of assets. If depreciation is charged against the asset, an important portion is taken out of the profits each year throughout the existence of the existing assets, and is accumulated and retained devoid of being distributed to the owners as dividend. Therefore at the end of the life of the existing asset, the business will have some funds to put back old asset with the latest one.
Accounting Theory 7edition, by Godfrey J., Hodgson A., Tarca A., Hamilton J., and Holmes S. Chapter 2: Theory in Action 2.2 “Normative Theories of Investment” Chapter 3: Theory in Action 3.1 “Companies should come clean on the value of leases on their books” Chapter 5: Theory in A
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