Q. 1).

* Depreciation - •Meaning-

The word 'Depreciation' has been derived from the Latin word
'Depuration' which means 'decline in price' or 'value'. Depreciation
relates to fixed assets which loose value on account of usage. Therefore
'Depreciation' means decline in value of fixed assets on account of
usage.
Depreciation is a permanent, gradual and continuous reduction in
the book value of the fixed asset. Except Land all the fixed assets e.g.
Car, Machinery, Furniture etc. depreciates in value making the asset
useless after the end of a certain period.
Depreciation is a rateable reduction in the carrying amount of a
fixed asset. Depreciation is intended to roughly reflect the actual
consumption of the underlying asset, so that the carrying amount of
the asset has been greatly reduced to its salvage value by to

• Definitions -
“The permanent and continuing diminution in the quality, quantity or
value of an asset.” -
William Pickles.
“Depreciation may be defined as a measure of the exhaustion of the
effective life of an asset from any cause during a given period.”
-Spicer and Pegler.
Depreciation is the gradual and permanent decrease in the value of an
asset from any cause whatever
-Carter
Depreciation is the shrinkage in the value of an asset at a given date as
compared with its value at a previous date
-J.H.Burton
• Causes of Depreciation:
A). Internal Causes-
1. Normal Physical Wear and Tear:
Due to normal use of the assets, the assets deteriorate physically,
which results in reduction in their value.
2. Depletion:
Other assets are of wasting character, perhaps due to the extraction of
the raw materials from them. These materials are then either used by
the business to make something else, or are sold in their raw state to
other businesses. Natural resources such as mines, quarries and oil
wells come under this heading. To provide for the this consumption for
an asset of a wasting character is called provision for deplete.

B). External Causes-

1. Efflux of Time:
Certain intangible assets have fixed life span such as Trade Marks,
Patents or Copyrights etc. The value of such assets decreases anyway
with the passage of time irrespective of the fact business enterprise is
using them or not.
2. Obsolescence:
Research & Development leads to innovations, in the form of better
and technically advanced machines that scrap old machines even
though they may be capable of being run physically.
In that case there may be a permanent decrease in the market prices of
certain assets like Computers, Motor Cars etc. This results in decline in
the value of old machines. Obsolescence is a loss arising from outdating
and replacing the existing asset with the new and improved model of
that asset.
3. Accidents:
Destruction or damage caused by an accident may result in reducing
the value of assets.
4.Erosion, Rust, Rot and Decay:
Land may be eroded or wasted away by the action of wind, rain, sun
and other elements of nature. Similarly, the metals in motor vehicles or
machinery will rust away. Wood will not eventually. Decay is a process
which will also be present due to the elements of nature and the lack of
proper attention.
5. Inadequacy
This arises when an asset is no longer used because of the growth and
changes in the size of the business. For example, a small ferryboat that
is operated by a business at a coastal resort will become entirely
inadequate when the resort becomes more popular. Then it will be
found that it would be more efficient and economical to operate a large
ferryboat, and so the smaller boat will be put out of use by the
business. In this case also it does not mean that the ferryboat is no
longer in good working order, nor that it is obsolete. It may be sold to a
business at a smaller resort.
6. Afflux of Time
Passage of time may cause a decrease in the value of an intangible
assets such as lease ,whether utilized or not.
7. Other Factors-
Sudden Change in fashions and tests ,new inventions, market
conditions ,govt. policies etc.