Features of depreciation

1. FEATURES OF DEPRECIATION

2. • IT IS DECLINE IN THE BOOK VALUE OF FIXED ASSETS.
• IT INCLUDES LOSS OF VALUE DUE TO EFFLUXION OF TIME, USAGE
OR OBSOLESCENCE. FOR EXAMPLE, A BUSINESS FIRM BUYS A
MACHINE FOR RS.1,00,000 ON APRIL 01, 2012. IN THE YEAR 2014,
A NEW VERSION OF THE MACHINE ARRIVES IN THE MARKET. AS A
RESULT, THE MACHINE BOUGHT BY THE BUSINESS FIRM BECOMES
OUTDATED. THE RESULTANT DECLINE IN THE VALUE OF OLD
MACHINE IS CAUSED BY OBSOLESCENCE.
• IT IS A CONTINUING PROCESS.
• IT IS AN EXPIRED COST AND HENCE MUST BE DEDUCTED BEFORE
CALCULATING TAXABLE PROFITS.

3. • FOR EXAMPLE, IF PROFIT BEFORE DEPRECIATION AND TAX IS RS.50,000, AND
DEPRECIATION IS RS.10,000; PROFIT BEFORE TAX WILL BE:
(RS.)
• PROFIT BEFORE DEPRECIATION & TAX 50,000
• (-) DEPRECIATION PROFIT BEFORE TAX (10,000)
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40,000
• IT IS A NON-CASH EXPENSE. IT DOES NOT INVOLVE ANY CASH OUTFLOW. IT IS
THE PROCESS OF WRITING-OFF THE CAPITAL EXPENDITURE ALREADY INCURRED.

4. DO IT YOURSELF
LOOK AT YOUR SURROUNDINGS AND IDENTIFY AT LEAST FIVE DEPRECIABLE
ASSETS IN YOUR HOME, SCHOOL, HOSPITAL, PRINTING PRESS AND IN A BAKERY

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