Depreciation means the decrease in the value of Fixed assets by passing time. It is charged only on fixed assets (except Land) Because every fixed asset has a life more than one year but will not last indefinitely and The land has an indefinitely life so it will be appreciated. Depreciation is treated as indirect expenses of the business and transferred to the income statement of the company and profit/loss account of the business.
There are three types of decreases in the value of an asset, which refers to a different category of fixed assets shown as follows.
1. Depreciation is used for the Tangible fixed asset. Such as Building, Plant, Machinery, Furniture, Fixture, Vehicle, Computer, etc.
2. Depletion is used in referring to physical exhaustion of natural resources. Such as oil well, Coal mine, etc.
3. Amortization is used for the Intangible fixed asset. Such as Goodwill, Patents, trademarks, leaseholds, etc.
Chapter No. 14 – Depreciation – T.S. Grewal 11 Class – Book Solution
T.S. Grewal’s Double Entry Book Keeping