PPT - Depreciation, Provisions and Reserves | SSC CGL Tier 2 - Study Material, Online Tests, Previous Year PDF Download

 Page 1


Depreciation,
Provision 
& 
Reserves  
Page 2


Depreciation,
Provision 
& 
Reserves  
Depreciation, Provision and 
Reserves
Page 3


Depreciation,
Provision 
& 
Reserves  
Depreciation, Provision and 
Reserves
Concept of Depreciation
? Depreciation is a permanent, continuing and gradual 
shrinkage in the book value of a fixed asset.
? It is charged on fixed asset only.
? The Institute of Chartered Accountants of India 
defines depreciation as “a measure of the wearing 
out, consumption or other loss of value of a 
depreciable asset arising from use, affluxion of time 
or obsolescence through technology and market 
changes.”
Page 4


Depreciation,
Provision 
& 
Reserves  
Depreciation, Provision and 
Reserves
Concept of Depreciation
? Depreciation is a permanent, continuing and gradual 
shrinkage in the book value of a fixed asset.
? It is charged on fixed asset only.
? The Institute of Chartered Accountants of India 
defines depreciation as “a measure of the wearing 
out, consumption or other loss of value of a 
depreciable asset arising from use, affluxion of time 
or obsolescence through technology and market 
changes.”
Causes of Depreciation
? Physical depreciation – It is caused mainly from 
wear and tear when the asset is in use and from 
erosion, rust, rot and decay from being exposed to 
wind, rain, sun and other elements of nature.
? Economic factors – These may be said to be those 
that cause the asset is in use even though it is in good 
physical condition.
? Time factors – There are certain assets with a fixed 
period of legal life such as lease, patents, and 
copyrights.
Page 5


Depreciation,
Provision 
& 
Reserves  
Depreciation, Provision and 
Reserves
Concept of Depreciation
? Depreciation is a permanent, continuing and gradual 
shrinkage in the book value of a fixed asset.
? It is charged on fixed asset only.
? The Institute of Chartered Accountants of India 
defines depreciation as “a measure of the wearing 
out, consumption or other loss of value of a 
depreciable asset arising from use, affluxion of time 
or obsolescence through technology and market 
changes.”
Causes of Depreciation
? Physical depreciation – It is caused mainly from 
wear and tear when the asset is in use and from 
erosion, rust, rot and decay from being exposed to 
wind, rain, sun and other elements of nature.
? Economic factors – These may be said to be those 
that cause the asset is in use even though it is in good 
physical condition.
? Time factors – There are certain assets with a fixed 
period of legal life such as lease, patents, and 
copyrights.
Cause of Depreciation
? Depletion – Some assets are of a wasting character 
perhaps due to extraction of raw materials from 
them.
? Accident – An asset may reduce in value because of 
meeting of an accident.
Depreciation Accounting –
It is a process of allocation, not of valuation.