Depreciation, Provisions and Reserves

Examples of such assets are patents, copyrights, leases, etc. whose utility to business is extinguished immediately upon the removal of legal backing to them. Obsolescence is another factor leading to depreciation of fixed assets. In ordinary language, obsolescence means the fact of being “out-of-date”.

Obsolescence implies to an existing asset becoming out-of-date on account of the availability of better type of asset. It arises from such factors as: Technological changes; Improvements in production methods; Change in market demand for the product or service output of the asset; Legal or other description. Decline in the usefulness of the asset may be caused by abnormal factors such as accidents due to fire, earthquake, floods, etc. Accidental loss is permanent but not continuing or gradual.

For example, a car which has been