In accounting, "written off" refers to the process of removing an asset or liability from the books of accounts. It means that the value of the asset or liability is reduced to zero, and it is no longer considered as a part of the company's financial statements.

Explanation of Depreciation:

Depreciation is an accounting method used to allocate the cost of an asset over its useful life. It represents the reduction in value of an asset due to wear and tear, obsolescence, or any other factors that cause the asset to lose its value over time.

Depreciation is typically recorded as an expense on the income statement and as an accumulated depreciation on the balance sheet. This allows the company to spread the cost of the asset over its useful life rather than recording it as a one-time expense.

Depreciation Methods:

There are several methods used to calculate depreciation, including:

1. Straight-line method: This method evenly distributes the cost of the asset over its useful life. It is calculated by subtracting the salvage value from the initial cost and dividing it by the useful life.

2. Declining balance method: This method recognizes higher depreciation expenses in the earlier years of an asset's life and lower expenses in the later years. It applies a fixed depreciation rate to the remaining book value of the asset.

3. Units of production method: This method calculates depreciation based on the actual usage or production output of the asset. It is particularly useful for assets that are directly linked to production, such as machinery or equipment.

Purpose of Depreciation:

Depreciation serves several purposes in accounting:

1. Matching principle: Depreciation ensures that the cost of using an asset is allocated to the periods in which it generates revenue. This helps in matching expenses with the revenue they help to generate.

2. Asset valuation: Depreciation provides a more accurate representation of the true value of an asset on the balance sheet. As an asset ages or becomes obsolete, its value decreases, and depreciation reflects this decrease.

3. Capital budgeting: Depreciation helps in evaluating the profitability and feasibility of investing in new assets. By considering the expected depreciation expense, businesses can assess the long-term financial impact of acquiring new assets.

Conclusion:

Depreciation is an essential accounting concept that helps in allocating the cost of an asset over its useful life. It is recorded as an expense and reduces the value of the asset on the balance sheet. Depreciation methods vary, but they all serve the purpose of matching expenses with revenue and reflecting the true value of assets.