which are used in business for more than one

which are used in business for more than one L EARNING O BJECTIVES After studying this chapter, you will be able to : explain the meaning of depreciation and distinguish it from amortisation and depletion; state the need for charging depreciation and identify its causes; compute depreciation using straight line and written down value methods; record transactions relating to depreciation and disposition of assets; explain the meaning and purpose of creating provisions and reserves; distinguish between reserves and provisions; explain the nature of various types of provisions and reserves including secret reserve. accounting year. Fixed assets (technically referred to as “depreciable assets”) tend to reduce their value once they are put to use. In general, the term “Depreciation” means decline in the value of a fixed assets due to use, passage of time or obsolescence.

In other words, if a business enterprise procures a machine and uses it in production process then the value of machine declines with its usage. Even if the machine is not used in production process, we can not expect it to realise the same sales price due to the passage of time or arrival of a new model (obsolescence). It implies that fixed assets are subject to decline in value and this decline is technically referred to as depreciation .