Question 1:

Accounting is responsible for capturing all types of transactions in a company. Depreciation is an expense that relates to a companys fixed assets. It is important because depreciation expense represents the use of assets each accounting period. Many different types of assets can incur depreciation. Facilities, vehicles and equipment are among the most common assets depreciated. Every business owner knows the importance of asset depreciation as everything a company owns generally loses value over time. Asset depreciation allows a company to deal with its assets and deduct the value from its corporate income taxes. On the other hand, small companies can make use of their fixed assets during hard times. For instance, when closing a business due to economic loss, companies can use their fixed assets to compensate terminated employees.

Required:

Explain the significance of depreciation in the business with illustrative example based on straight line method of depreciation