Depreciation

When a non-current asset is bought by a company for use in the operations of a business it must be depreciated over a number of years to reflect the “using up” or consumption of the asset. Take for example a business buys a computer to be used in the day-to-day operations of the business. This asset will have a useful life of only about 3 or 4 years by the end of which it will become obsolete as more powerful computers will be available to replace it at roughly the same price.