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Concept of Depreciation

November 19, 2013 by admin Leave a Comment

The concept of depreciation is closely linked to the concept of business income. In the revenue generating process the use of long-term assets tend to consume their economic potential. At some point of time these assets becomes useless and are disposed of and possibly replaced. The economic potential so consumed represents the expired cost of these assets and must be recovered from thc revenue of the business in order to determine me income eamed by the business. Depreciation may, therefore, be defined as that portion of the cost of the assets that is deducted from revenue for assets’ services used in the operation of a business.

In orderto have a clear understanding about the concept of depreciation, it will be useful to quote definitions given by some prominent writers.

According to Pickles, “Depreciation is the permanent and continuing diminution in the quality, quantity or value of an asset”.

The Institute of Chartered Accountants of England aid Wales defines depreciation as “that prt of the cost of a fixed asset to its owner which is not recoverable wthen the asset is finally put out of use by him. Provision against this loss of capital is an integral cost of conducting the business during the effective ctmmercial life of the asset and is not dependent upon the amount of profit earned”.

Filed Under: Depreciation Tagged With: Concept of Depreciation, concept of depreciation in accounting

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