Meaning of Depreciation:
“Depreciation is defined as shrinkage in the value of an asset due to wear and tear; passage of time or obsolescence”
Depreciation is the systematic allocation of the cost of a tangible or intangible asset over its useful life.
Depreciation is an important concept in accounting because it helps to accurately reflect the true value of assets on a company’s balance sheet. Without depreciation,
the value of an asset would remain unchanged on the balance sheet over time, even though its actual value is decreasing.
There are several methods used to calculate depreciation, including straight-line depreciation, accelerated depreciation, and units of production depreciation. Each method has its own formula and is used depending on the nature of the asset and the company’s accounting policies.
Definition:
“Depreciation may be defined as permanent and continuing diminution in the quality, quantity or the value of an asset.”
-William Pickles.
“A measure of the wearing out, consumption or other loss of a value of a depreciable asset arising from use, effluxion of time or obsolescence through technology and market changes.”
-The Institute of Chartered Accountants of India. (ICAI)
“Depreciation is the allocation of the depreciable amount of an asset over its estimated useful life. Depreciation for the accounting period is charged to income either directly or indirectly.”
-The International Accounting Standard Committee. (ICAC)
Causes of Depreciation:
