The depreciation policy of a business enterprise is of immediate concern to the investing public which primarily focuses its attention on reported net income. The absence of depreciation expense in the income statement of manufacturing business would positively inflate the income of company and thereby mislead the investors to think that the company is more profitable than it actually should be. The investors, therefore, might be forced to invest his money unwisely. Alternatively, he might unnecessarily become suspicious about the intentions of the management that the company has avoided depreciation expense in the income statement in an attempt to show more income. Though in reality the omission of depreciation expense was genuine and not deliberate. This might be depriving him of a profitable investment. It is, therefore, assumed that the investment decisions depend directly on the accuracy with which expense figures represent the utilization of asset. The objective of the depreciation policy therefore should be to report the accurate expiration cost of the asset used in the relevant accounting period. Similarly the net balance in the asset account in the balance sheet should accurately reflect the unexpired portion of the asset service potential.

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