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P2 C2 Depreciation Accounts — Account STD 11 Commerce — Question

Gujarat BoardEnglish MediumSTD 11 CommerceAccountP2 C2 Depreciation Accounts3 Marks
Question
Define depreciation and discuss factor of depreciation.
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Answer

Definition : Due to the natural or physical factors, due to passing of time or due to innovation the value of asset keeps on decreasing. When the efficiency of asset constantly decreases and consequently the useful value of asset also constantly and permanently decreases is known as depreciation • Carter$\rightarrow $ Depreciation is the gradual permanent decrease in the value of an asset due to any reason. • Spicer and Pegler$\rightarrow $Depreciation may be defined as a measure of the exhaustion of the effective life of an asset, due to any cause, during a given period. • Matchmen and Slevina$\rightarrow $Depreciation is continuous and permanent reduction in the useful value of assets. • $B.N$. Tandon$\rightarrow $The permanent reduction in the value of asset due to any reason is known as depreciation. Factors affecting depreciation : Depreciation is reduction in the useful value of asset. Causes of reduction is useful value of assets are as follow :
$(1)$ Use of asset : The efficiency of any asset reduces due to its use. The useful life anduseful value also reduces due to reduction in efficiency of asset. During the year, valueof reduction of asset, shows amount of depreciation.
$(2)$ Time factor : The life of some asset come to end automatically on completion of certain period of time. The useful life of such assets gradually reduces with time and atthe end of a fixed period its value is considered as zero. Many time assets remain unused.still their value is decreasing
$(3)$ Gradual reduction in quantity : The value of some assets is determined by the quantityof the respective assets like mines, gas and oil wells. The value of such asset is based ontheir size of quantity and the use of such assets, reduce their value. When they arefinished the value of such assets becomes zero.
$(4)$ Permanent reduction in market value : As and when there is permanent reductionin market value of asset, the amount of reduction is known as depreciation.
$(5)$ Accident :Some times accidents create loss during the use of assets. So this reducesthe utility and estimated life of the asset and consequently the value of asset reduces.This reduction is known as depreciation.
$(6)$ New innovation and research: At times the introduction of new technology or innovation reduces the value of the assets in use. Such reduction is known as depreciation in value.
$(7)$ Natural factor :Due to the natural factors like flood, earthquake, rain, climate etc.the estimated life of asset decreases or asset becomes useless and consequently the valueof asset reduces. This is known as depreciation.

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