Depreciation is defined as a measure of the depletion of an asset’s lifetime thanks to any cause during a specific period of time.
“Depreciation may be a measure of the consumption, consumption, or other loss useful of a depreciable asset resulting from use, time wasted, or obsolescence thanks to changes in technology or market. During that point, you’ll be assigned to charge a big portion of the depreciation amount for every accounting period. Depreciation expense includes the depreciation of assets with a predetermined useful life. “
Depreciation features:
(I) Depreciation may be a decline within the value of fixed assets (excluding land). The decline within the value of an asset is inherently permanent. Once shrunk, it can’t be restored to its original value.
(II) Depreciation may be a gradual and continuous process because the worth of an asset decreases thanks to the utilization of the asset or the expiration of your time.
(III) Depreciation reduces the value, not the market price of an asset.
(IV) Depreciation is merely used for property, plant and equipment. It’s not to waste intangible assets like amortization of goodwill and depletion of natural resources.
Causes of depreciation:
1. Normal physical wear and tear:
The normal use of an asset causes it to physically deteriorate, leading to a decrease within the value of the asset.
2. Time outflow:
Certain intangible assets, like trademarks, patents and copyrights, have a hard and fast lifespan. the worth of those assets diminishes over time, whether or not they’re employed by a corporation.
3. Obsolescence:
R & D brings innovation within the sort of better, technologically advanced machines that eliminate older machines, albeit they will be physically performed.