Master Note of Accounting and Finance

Concept of Depreciation Most plant and equipment assets wear out or become obsolete over the years. Similarly, although land is not depreciated (because it does not wear out), improvements to land, such a paving or fences, are depreciated because these improvements wear out or become obsolete over time. The portion of assets "used up" (wear out) each year is referred to as depreciation.  Depreciation is the way to calculate the reduction in value of any fixed assets due to use, wear, tear and obsolescence. It is the method to calculate deduction in price of any fixed assets due to wear and tear that reduces the monetary value of the assets.  Nature of Depreciable Assets The depreciable assets can be found by reviewing the following characteristics of the assets listed as bellows: Ability to use more than one accounting period Having a limited useful life Use for production of goods or services Use for rent, etc.  Large investment requirement Capital Expenditure in Nature, etc