Study Principles of Accounts notes on Depreciation for Secondary. Useful for revision, homework, and exam preparation in Zimbabwe.
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This is the Principles of Accounts notes. It is a free notes for revision.
DEPRECIATION NOTES[MR KAYBEE-077 112 5547/071 818 1255] Meaning of depreciation - can be defined as the permanent decrease in the value of an asset through the number of reasons such as wear and tear in use, passage of time etc. - It can be defined as allocation of the cost of assets to periods in which the assets are used(with matching concept). - Depreciation is the diminution(loss) in the financial value of the fixed asset. Causes of depreciation - Causes of depreciation may be of two: internal causes and external causes. INTERNAL CAUSES OF DEPRECIATION - Wear and tear : Results from friction, resistance and chemical reaction. - Depletion : Depletion is reduction of natural resources. In case of wasting assets, depletion is also of fall in the value of assets like mines, oils wells and forests. - Deterioration : Deterioration means erosion in value of those assets which have a very short life. Proper repairs and maintenance of these assets cause an additional loss by way of deterioration. EXTERNAL CAUSES OF DEPRECIATION - Passage of time : The value of the asset goes down whether utilized or not. - Obsolescence : The assets getting out of use due to new invention and loss of demand due to change in technology. - Accidents : Accidents may also cause a permanent fall in the useful life as well as in the value of assets. - Permanent fall in price : A permanent fall in the market value of investments is recorded as depreciation. Other assets are depreciated on the basis of it's useful life. Need For providing Deprecation - To accumulate funds for replacement of assets. - To present true and fair value of assets in the statement of financial position. - To ascertain true results of operations. - To spread the depreciation cost over the asset's useful life. V7 Edit with WPS Office