Above mentioned discussion on depreciation highlights the following features

of depreciation: . It is decline in the book value of fixed assets. . It includes loss of value due to effluxion of time, usage or obsolescence.

For example, a business firm buys a machine for Rs. , , on April , . In the year , a new version of the machine arrives in the market. As a result, the machine bought by the business firm becomes outdated.

The resultant decline in the value of old machine is caused by obsolescence. . It is a continuing process. .

It is an expired cost and hence must be deducted before calculating taxable profits. For example, if profit before depreciation and tax is Rs. , , and depreciation is Rs. , ; profit before tax will be: (Rs.) Profit before depreciation & tax , (-) Depreciation ( , ) Profit before tax , .

It is a non-cash expense. It does not involve any cash outflow. It is the process of writing-off the capital expenditure already incurred.