Question
What is depreciation? list few methods of providing depreciation?
Answers
It is common knowledge that when an asset is used over a period of time, it looses its value. This loss in value is called depreciation. Pickles defines it as "the permanent and continuing diminution in the quality, quantity or value of an asset" Depreciation is the continuous shrinkage of book value of an asset.
Few method of depreciation are
Straight line Method: An equal amount is written off every year during the working life of an asset so as to reduce the cost of the asset to nil or its residual value at the end of its useful life.
Reducing Balance Method: A fixed percentage of the diminishing value of the asset is written off each year so as to reduce to its break up value at the end of its life.
Machine hour method: If it is practicable to keep a record of the actual running hours of each machine, depreciation may be calculated on the basis of the hours for which the concerned machine worked.   Your Comment




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