Explain the concept of depreciation. What is the need for charging depreciation and what are the causes of depreciation?

Explanation

Concept of Depreciation In straightforward words, Depreciation may be a gradual reduction within the price of assets. during this approach, depreciation could also be outlined because the permanent continuous diminution within the quality, amount or price of assets. According to the Institute of price and Management Accounting, London (ICMA) language, "The depreciation is that the diminution in intrinsic price of the quality because of use and/or lapse of time".


Need for Charging Depreciation In accounting Depreciation is required attributable to abstract, legal and sensible business thought. additional over it's needed".

(i) To allot depreciable price
(ii) to determine true and honest profit or loss
(iii) To reveal true and honest money position
(iv) to produce funds for replacement

Causes of Depreciation There area unit usually 2 main causes of depreciation. initial is traditional cause like traditional wear and tear thanks to usage or passage of your time, expiration of right just in case of some assets and devolution thanks to technological advancement and second area unit abnormal causes like accidents thanks to fireplace, earthquake, floods etc.