Depreciation on Equipment

Equipment is the fixed assets of business, so it is reported on the balance sheet's asset side but we have to calculate its depreciation every year. It is deducted from our total revenue in profit and loss account. Depreciation is just loss value of equipment. It is not cash payment. So, we can collect same amount as our reserve in safe place for buying new equipment. Original value of equipment will decrease with same depreciation every year.


For example Mr. A bought an equipment for his profession. His profession is to treat the patients with the help of equipment in hospital. He paid total of its cost is $ 1000. Now, suppose, he calculates depreciation of 10%. At that time, he will charge $ 100 every year. This $ 100, he will save. This $ 100 will deduct from profit and loss account. This $ 100, he will deduct from equipment in balance sheet. When he saw that his equipment became dead, he will be $ 1000 in saving from depreciation fund. With this, he can buy a new equipment.