Meaning of depreciation
Every business wons and uses fixed assets such as land, building, machinery, tools, equipment, vehicles, furniture, patents, patterns, designs, etc. for the purpose of generating revenue through its production and selling operations. These assets have relatively long lives such as 5, 10, 20 years or so. and are not meant for resale. All fixed assets except land have a feature that their values decrease with their constant use and passage of time.
Thus, the values of these assets decrease each year and the gradual decrease in the value of fixed assets is called depreciation. Such depreciation is regarded as revenue expenditure and is subtracted from revenue to determine the true profit of the business. Therefore, an appropriate amount of depreciation of fixed assets is annually charged to determine business profit and to replace the assets, as they are fully worn out.
Definition of depreciation
Depreciatoinis gradual decline in the value of fixed assets due to ear and tear or passage of time. Some notable definitions of depreciation are as follows:
Depreciationis the premanenet and continuing deminution in the quality , quantity or value of an ssets.
Depreciation may be defined as the mesure of the exhuastion of the effective life of an assets form any cause druing a given preiod.
-Spicer and Peglar
It is apparent from the above definitions that depreciation is a constant reduction in the value of fixed assets possessed by the business due to their constant use. Since it is the loss in the value of fixed assets, it is regarded as a revenue expense and charged to the revenue of the business.
Depreciation is a premanent , continous and grau=dual decline inthe calure of fixed assets. It is treated as an exprenses or loss. It is non-cash revenue exprenses and chargedin profit and losss account. Depreciation is quality or value deterioration of fixed assets because of their constant use.