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Definition

The accounting principle which requires that the expenses of a period be subtracted from the incomes of the same period in order to arrive at the profit or loss for that period. For example, if a motor vehicle is purchased for R100 000 cash and is expected to last for five years, then it is clearly incorrect to deduct the entire cost of the vehicle from the incomes of the year in which it was purchased. Accordingly, the vehicle is depreciated over the 5 years of its expected life with 20% of its cost or R20 000 being deducted from profits each year.

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