Consequence of depreciation of assets on profits
Write down the consequence of depreciation of assets on profits received by owners?
Expert
Depreciation forms a division of cost that is employed for arriving at correct estimation of profits that then is distributed to the owners of the business in the type of dividend. Addition of depreciation to the cost diminishes the amount of distributable profits. By maintaining a depreciation account a division of the distributable profit is retained in the business as a reserve that is employed to purchase new machinery or for other purposes in the prospect that reduces the dividends or profits received by the owners.
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