3.5 : 固定資産の減価償却

Depreciation is an accounting method used to allocate the cost of physical assets over their useful lives.

Depreciation on assets occurs when they typically lose value due to time, wear and tear, and technological changes.

The three main ways to calculate depreciation are the straight-line method, the written-down-value method, and the units of production method.

For example, a bakery owner purchases an oven "to produce cakes with an estimated useful life of 5 years"

The oven will provide economic benefits to the bakery "spread over the 5 year useful life" as it will be used for baking  cakes, which can be sold to generate revenue.

However, it will lose value over time due to daily usage in cake production and better oven technology available in the market.

The loss in the value of assets is systematically spread over five years.

The primary purpose of depreciating the oven is to match its cost to the revenues it generates yearly.

Depreciation of the oven ensures the financial statements provide a realistic view of the bakery's financial health.