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Meaning of Depriciation

The concept of depreciation is related to fixed assets only. Current assets are never depreciated rather these are valued. Simply, Depreciation means it is a permanent and gradual shrinkage in the book value of fixed asset. Depreciation is charged on the book value only. Once Depreciation is charged, it should gradually reduce the value of fixed assets.

The Institute of Chartered Accountants of India defines depreciation as “a measure of the wearing out, consumption or other loss of value of a depreciable asset arising from use, afflux ion of time or obsolescence through technology and market changes. Depreciation is allocated so as to charge a fair proportion of the depreciable amount in each accounting period during the expected useful life of the asset. Depreciation includes amortization of assets whose useful life is predetermined”.

According to the International Accounting Standard Committee “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”.