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Causes Of Depreciation

The following are the main causes of depreciation :

 (i) Physical Cause. It is caused mainly from the wear and tear due to friction, pull, impact, fatigue, twisting etc. And also it includes lack of maintenance and repairs in time.

 (ii) Time Factors. Some assets lose its value simply with passage of time in the practical business life. There are certain assets with a fixed period of legal life such as lease, patents and copyrights. Here, instead of depreciation, provision for the consumption of these assets is created. This is called amortization.

(iii) Economic Factors. Depreciation arises due to the changes in Fashion and Technology. In the real sense, new model and new technology may make the asset become obsolete even if it is in good physical condition. Sometimes, due to organizational growth, usage of assets are to be stopped or inadequacy of existing equipment due to the expansion of the business.

(iv) Abnormal Occurrences. The value of asset may be decreased because of accidents due to some wrong operations or some loose component which may result in heavy damages to the industry. Inferior quality of materials also decreases the value of asset.

(v) Depletion. Certain assets are of wasting character perhaps due to the extraction of raw materials from them. In lieu of writing off depreciation to provide for the consumption or utilization of an asset of a wasting character is called provision for depletion.