Explain the causes of Depreciation.

Causes of Depreciation

• Wear and Tear due to use or passage of time:- Wear and tear means deterioration, and the consequent diminution in an assets value, arising from its use in business operations for earning revenue. It reduces the asset’s technical capacities to serve the purpose for, which it has been meant. Another aspect of wear and tear is the physical deterioration.
• Expiration of legal Rights :- Certain categories of assets lose their value after the agreement governing their use in business comes to an end after the expiry of pre-determined period.
• Obsolescence:- Is another factor leading to depreciation of fixed assets. Obsolescence means the fact of being “out-of-date”. Obsolescence implies to an existing assets becoming out-of-date on account of the availability of better type of assets.
• Abnormal Factors:- Decline in the usefulness of the assets may be caused by abnormal factors such as accidents due to fire, earthquake, floods, etc. Accidental loss is permanent but not continuing or gradual.