What are different causes of Depreciation?

Here are some of the reasons or causes of depreciation:

  • Physical loss
    Any damaging change in the physical features of the asset or  in the productivity, efficiency or effectiveness of the asset either because of the usage, perishability, or any mishap will result in the decrease in the value of asset and subsequent disposal will not fetch the same amount as was paid at the time of acquisition.
    • Usage
    • Perishability
    • Accident
  • Technological advancement
    • Extinction may be because of tastes and fashion or support service, spare parts not available etc. Required raw material or input is not available due to any reason or the output carry no customers in the market.
    • Inappropriateness
  • Expiry right to use has expired over time
  • Exhaustion in case of natural resources such as mines and wells exhaust as a result of extraction of minerals

However, following are some examples which many students might misinterpret as causes of depreciation are not. Rather these examples can be one the causes of impairment.

  • Market perception stolen and recovered subsequently will not have the same perceived value as the new one has or the old one with of same condition. Legal documents have been misplaced and thus ownership is not evidenced or with duplicate book where duplicate book is taken not as good as original documents.
  • Legality no longer legal to be used or the input required or output obtained is no longer legal.is declared hazardous. All machinery which was used to manufacture Freon gas after it
  • Market perception: due to any reason customers’ perception of asset’s utility has been hampered. For example, ownership documents has been misplaced.
Depreciation is a gradual decrease in the value of asset and not one off or sudden fall. That is the main difference between depreciation and impairment.

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