Question
What is the difference between depreciation and depreciation reserve fund?
| S. No. |
Basis
|
Depreciation
|
Depreciation reserve fund
|
| 1. |
Concept
|
It is the loss of value of fixed assets in use, on account of normal wear and tear.
|
It is a provision of funds created by producers to cope up with depreciation losses.
|
| 2. |
Effect
|
It leads to correct computation of profit.
|
These funds are used for the replacement of fixed assets when these are worn out.
|
| 3. |
Reason
|
Expected or foreseen obsolescence, normal wear and tear.
|
Obsolete/ outdated assets need to be repalced.
|
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| Autonomous consumption | = | Rs. 100 |
| Marginal propensity to consume | = | 0.80 |
| Investment | = | Rs. 50 |