of trial run are included in the cost of the asset. If the asset is a second-hand one, the initial repair to make the asset useable is also to be taken as part of actual cost of the asset. (ii) Estimated useful life of the asset The period for which an asset can be used in the enterprise is known as estimated useful life of an asset. It can be calculated in terms of period for which the asset is expected to be used by the entity or units of output to be obtained by the use of the asset.
etc. In the case of intellectual properties like patents and copyrights, their legal life is taken as their estimated useful life. The Indian Companies Act, has prescribed useful lives of fixed assets for the purpose of computation of depreciation. For example, the useful lives prescribed in Part C of Section for general plant and machinery and general furniture and fittings are years and years respectively.
(iii) Scrap value of an asset The amount which is expected to be realised at the end of the estimated useful life of an asset is known as scrap value of the asset. It is also known as residual value. In determining the scrap value, costs to be incurred for removal and sale of the asset should be deducted from the estimated gross realisable value. Accountancy (iv) Other factors Besides the above mentioned factors, legal provisions, technological factors, etc., also determine the amount of depreciation.
. Methods of providing depreciation There are various methods used for providing depreciation on fixed assets. The management of a business enterprise has to select the most appropriate method based on the consideration of various factors such as nature of the asset, use of the asset and circumstances that prevail in the business. The following are the different methods of providing depreciation: i) Straight line method or Fixed instalment method or Original cost method ii) Written down value method or Diminishing balance method iii) Sum of years of digits method