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What do you mean by Depreciation?

Depreciation is decrease in the value of assets due to getting old, wear and tear, accidents and other reasons. Generally it is debited in Profit and loss account at a fixed percentage of the value of assets.

Straight Line Depreciation Formula - HD Photos Gallery

image source: blog.gma-cpa.com/portals/226116/images/istock_000006743317large.jpg

The students are advised to take great care as regards the rate of depreciation. If the rate is without the words ‘per annum or p.a.’, then the rate will be applied without any regard to the period of time. This is very important specially in those cases where the period of accounts is less than one year. On the other hand, if the rate of depreciation is ‘p.a. or per annum’, the depreciation should be calculated on the assets with due consideration to the period for which the asset has been used in business during the year.

In case of additions to assets during the year, it is advisable to ignore depreciation additions, if the date of additions is not given. Same rule shall hold  good for the sale of assets during the year.

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