Question

what is the purpose of a reserve for depreciation or depletion

Answer 1

The purpose of reserve for depreciation is to due to the Matching concept. The benefit provided by an asset is matched with cost incurred in the form of depreciation. For example, when we purchase a machinery for a business, it's value decreases(depreciates) since it is used and suffers from wear and tear too. Thus, a portion of the asset is provided in the form of reserve to the profit and loss account. Thus, an amount is accumulated every year so that new asset can be purchased when the asset's life reduces to nil.

Depreciation Methods involve straight line and double declining methods. Accelerated depreciation is used in some cases. In simple words, it can be said the Purpose of providing depreciation is to match the cost of the asset with the revenue earned due to it.