Financial Management Accounting 1.2

Assets (Photo credit: LendingMemo)

STUDYMATERIAL - Depreciation – methods

MEANING:

             Depreciation may be defined as the permanent decrease in the value of an asset through wear and tear in the use or the passage of time.

              Depreciation is an expense or loss involved in using machinery, motor vehicles, tools and other fixed assets in the process of production and has to be provided for; this is done by estimating the amount to be written off the value of  particular aset each year and setting this amount against the profits for that year.

      Institute of chartered accountants of India defines, “ a measure  of the wearing out, consumption o other loss of a value of a depreciable asset arising from use, afflux ion of time or obsolescence through technology ad market changes.

      Depreciation is allocated so as to charge a fair proportion of the depreciable amount in each accounting  period during the expected useful life of the asset.

     Deprciation includes amortisation of assets whose useful life is predetermined.”

CAUSES OF DEPRECIATION :

1.     Physical deterioration:

It is caused mainly from wear and tear when the asset is in use and from erosion, rust, rot and decay from being exposed to wind, rain, sun and other elements of nature.