Financial forecasting is used to provide organisations with a view of their potential liabilities and sustainability into the future. Depreciation is not explicitly funded for, but is included in the annual balance sheet and contributes to the annual profit or loss calculation.
Some of the key assumptions or constraints relevant to financial forecasting are:
The financial forecasts are dependent on the above key assumptions. In accounting terms, the decline (or gain) in service potential is defined as the value of renewals less depreciation, and indicates the rate the asset is being consumed”. Forecasts need to be periodically updated as more accurate information comes to hand or when significant changes in assumptions occur. Some of the following events may result in a need to update financial forecasts: