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HM Accountax Ltd
HM Accountax Ltd, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 136
Experience:  I am an accountancy professional with more than10 years hand on experience in audit, accountancy and tax affairs.
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I have seen some companies P&L account and they offset their

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I have seen some companies P&L account and they offset their profit with depreciation expense. Why depreciation expense is used to offset net income. I know it is added back for tax adjustments as it is not tax-deductible but why put it in first place because initially the asset may have been claimed under capital allowance so no/little tax had been paid on it. We can just have a separate accumulated depreciation account to estimate the current value of the asset but what does this have to do with the profit?

Hi,

I am an advisor at Just Answer and I am more than happy to assist you,

I am looking into your query and contact you shorlty.

Regards

Muhammad

Depreciation is an accounting concept of spreading the cost of asset over its useful life. The accounting principle require us to spread the cost over useful life and to comply with accounting principles, we need to put the depreciation in the accounts.

I hope this answers the question.

Regards

Muhammad

Customer: replied 3 days ago.
Yeah but why in profit and loss account when it does not affect it?

This is to comply with the applicable accounting standards and questioning/challenging them is above my pay scale.

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