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Depreciation

Depreciation is an accounting item that is supposed to represent the wear and tear of assets that a company owns. The value of the asset is written off over time by making a charge against profits. Some things don’t depreciate – things like cash, land and buildings. Some depreciate quite fast – things like computers. Companies set depreciation rates for different types of asset that are designed to write off the value of the asset over its useful life. The depreciation charge is only a notional accounting item though – no cash is moving around – and depreciation is added back onto profits when calculating tax.

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