an asset from any cause during a given period”. According to R.N. Carter , “Depreciation is the gradual and permanent decrease in the value of an asset from any cause”. .
. Useful life of the asset Useful life is (a) the period over which an asset is expected to be available for use by an enterprise; or (b) the number of production or similar units expected to be obtained from the asset by an enterprise. According to Indian Accounting Standards, (AS ) depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. The depreciable amount of an asset is the cost of an asset or other amount substituted for cost, less its residual value.
. . Depreciable assets Fixed assets which are meant for use in the business for more than one accounting period, the cost of which can be written off over their useful life are known as depreciable assets. Buildings, machinery, vehicles, furniture, computers and equipment are examples of depreciable fixed assets.
These assets have limited useful life. They are meant for use in the business for production or supply of goods or for administrative purposes. These are not meant for resale. .
Objectives of providing depreciation Following are the objectives of providing depreciation: (i) To find out the true profit or loss According to matching principle, the expenses incurred during a period must be matched with revenue earned during that period. Hence, when an asset is used for generating income for a Accountancy business, the cost of the asset attributable to the use, i.e., the reduction in the book value of the asset proportionate to the benefit derived from it, should be charged against the revenue. This is to be done to find out the true cost of production and profit or loss of the business for every accounting period. (ii) To present the true and fair view of financial position When the depreciation is charged on fixed assets, the book value of fixed assets are reduced to that extent and the remaining value is shown