DEPRECIATION – SHORT SUMMARY (Easy & Quick Revision)
Meaning
Depreciation is the decrease in the value of a fixed asset due to use, time, wear and tear, or
becoming outdated.
Causes
1. Wear and Tear – using the asset daily.
2. Passage of Time – value falls even if unused.
3. Obsolescence – new technology replaces old.
4. Accidents – sudden damage.
5. Expiry – patents, copyrights have limited life.
Objectives
To find true profit.
To show correct asset value in the balance sheet.
To create funds for future replacement.
To match cost with revenue (matching concept).
Meaning
Depreciation is the decrease in the value of a fixed asset due to use, time, wear and tear, or
becoming outdated.
Causes
1. Wear and Tear – using the asset daily.
2. Passage of Time – value falls even if unused.
3. Obsolescence – new technology replaces old.
4. Accidents – sudden damage.
5. Expiry – patents, copyrights have limited life.
Objectives
To find true profit.
To show correct asset value in the balance sheet.
To create funds for future replacement.
To match cost with revenue (matching concept).
