CAUSES OF DEPRECIATION
The causes of depreciation are as follows:
1. Wear and tear. Assets get worn or torn out on account of constant use as is the case with plant and machinery, furniture and fixtures- used in a factory.
2. Exhaustion. An asset may get exhausted through working. This is the case with mineral mines, oil wells etc. On account of continuous extraction of minerals or oil, a stage comes when the mine or well gets completely exhausted and nothing is left.
3. Obsolescence. Some assets are discarded before they are worn out because of changed conditions. For example, an old machine which is still workable may have to be replaced by a new machine because of the latter being more efficient and economical. Such a loss on account of new inventions or changed fashions is termed as loss on account of obsolescence.
4. Etfiux of time. Certain assets get decreased in their value with the passage of time. This is true in case of assets like leasehold properties, patents or copy rights.
5. Accidents. An asset may meet an accident and, therefore, it may get depreciated in its value. On the basis of the above causes, it can be said that depreciation is the decrease or depletion in the value of an asset due to wear and tear, lapse of time, obsolescence, exhaustion and accidents.