Depreciation Definition | Depreciation Meaning | Types of Depreciation

on

Depreciation

According to L.C Cropper “Depreciation is the diminish in the financial assets of value owing to wear and tear, efflux, obsolesce or similar reason.”
          Depreciation is a process where permanent continuously and gradually the book value of the fixed asset is decreased over a period of time from one period to another period. The net result of an asset’s depreciation is that sooner or later the book value of the asset becomes zero.
          The factors influencing the cause of depreciation are
§  Wear and Tear due to actual use.
§  Efflux of Time which means merely passage of time will lead to fall in the value of the asset.
§  Obsolescence
§  Accident
§  Fall in market price
Graphical representation of depreciation - decrease in the value of asset

Methods of Depreciation

Fixed Asset defers from one another in their nature very widely as such no single depreciation can be applied to all types of fixed assets. Different methods of depreciation are  required to be applied to different assets.
          The important methods used in calculating the depreciation are
1.   Fixed Installment Method or Straight Line Method or Original Cost Method or Equal Installment Method
2.     Written Down Value or Diminishing Balance Method or Reducing Method.
3.     Annuity Method
4.     Insurance Policy Method
5.     Revaluation Method
6.     Depletion Method
7.     Depreciation Fund Method
8.     Sum of Digits Method
9.     Machine Hour Rate Method
10.  Repairs Provision Method

Comments

Post a Comment