Capital Market Chronicles – Episode 123: DEPRECIATION IN AN INCOME STATEMENT (Part I)

 📉 Capital Market Chronicles – Episode 123:

DEPRECIATION IN AN INCOME STATEMENT (Part I)

"Because even the mightiest machines lose their shine over time..." 🏗️🕰️

🎬 The Opening Scene:

Let’s say you buy a shiny new coffee machine ☕ for your office — sleek, silver, futuristic. Your team loves it. Productivity skyrockets. But five years later, that same machine wheezes like it just finished a marathon with a hangover. That, my dear Watson, is depreciation! 😩🛠️

📚 What is Depreciation?

Depreciation is accounting’s way of admitting that things fall apart. Whether it’s a truck 🚚, a laptop 💻, or a factory 🏭, everything ages — and the accountants are here to track that decline with surgical precision 🧮🔍.

It’s the method of spreading the cost of a tangible asset over its useful life — kind of like stretching your expensive silk tie budget over multiple weddings 👔💸.

💡 Key Nuggets of Knowledge (Served with a Side of Humour)

🔹 It’s a non-cash expense: No actual money leaves your wallet 💸, but it quietly sneaks into your income statement and reduces your profits like a polite party guest who eats all the snacks. 🥨

🔹 It’s all about matching: No, not Tinder. This is the matching principle in accounting — matching the asset’s cost with the revenues it helps generate. Swipe right on good reporting! 📲💼

🔹 It affects profits, not cash: Depreciation lowers reported profits without touching your bank balance. So, it’s like crying on paper while your wallet stays dry. 😢📄

🔹 It shows asset age: High depreciation could signal that the company’s running its operations on dinosaurs 🦕 — time to watch out for upcoming maintenance or capital expenditures!

🧮 Let’s Get Nerdy: Example Time!

You bought equipment for ₹10,00,000 (big spender! 💸), and it has a useful life of 5 years.

Using the Straight-Line Method, you depreciate equally every year:

🧾 Formula:

Depreciation Expense = (Asset Cost – Residual Value) / Useful Life

Assuming the machine will be worth nothing but nostalgic memories after 5 years (Residual Value = ₹0):

🧮 ₹10,00,000 ÷ 5 = ₹2,00,000 per year

Each year, your income statement takes a ₹2,00,000 hit — not because you spent the money again, but because your asset aged a little more. It’s like watching your favorite jeans fade but still pretending they’re “vintage.” 👖🧓

💀 The Brutal Truth:

Assets get tired. 💤
Accountants notice. 🧐
Investors should care. 🧠💡

Depreciation may not take your cash, but it will trim your profits. And if you're analyzing a company with chunky depreciation expenses, it could be a sign that its machinery is singing "Take Me Home, Country Roads." 🎶🚜

📌 TL;DR with a Wink:

• Depreciation = The silent decline of your favourite business toys. 🧸📉

• It's a non-cash expense (your wallet is safe – for now).

• Helps match costs to the revenue generated = good financial hygiene 🧼

• Reduces profits = less to brag about 💬

• Signals asset condition and future CapEx needs = eyes open, investors! 👁️

🌐 Stay tuned to Our Blog  https://stockmarketpedia4u.blogspot.com/ — where we decode the stock market one laugh at a time. 😎💰

📖 Craving deeper dives and serious know-how (minus the financial snoozefest)? Surf over to: https://www.stockmarketpedia.in/ 

📚 Prefer your reading with chai in one hand and market wisdom in the other? Now available on Amazon Kindle

• Stock Market Decoded - A Beginner's Guide to Smart Investing by P. Shirley — perfect for sounding smarter than your portfolio at dinner parties.

• Money Money Money – Tickling You into an Investing Habit by P. Shirley — the nudge your lazy rupees have been waiting for. 

Want to open an account with Mirae Asset Sharekhan? 

Got burning questions about bulls, bears, or bizarre market behaviour?

Ping us at: stockmarketpedia4u@gmail.com

WhatsApp:  8300840449

 © 2025 Stock Market Pedia. All Rights Reserved