DEPRECIATION, PROVISIONS AND RESERVES

DEPRECIATION, PROVISIONS AND RESERVES
Depreciation is the reduction in value of an asset as a .result of fair1 wear and tear. As an asset loses its value/efficiency we reduce the book valuation of it in line with our estimate of loss. Depreciation is a fairly complex topic, where book-keeping merges into Accountancy. The Accounting principle which motivates Accountants' to try different methods of depreciation, is that we are, seeking in our Accounting to achieve a true and fair view' of the position of the business-. This 'true and fair view* requires two things:
Hi) The assets must be valued on the books at a fair Value so far as we can estimate it.
C) If a loss has been suffered it must be charged against the profits to do otherwise Would overstate the profitability of the business. Apply these two rules to the problem of depreciation, we see that if an asset wears out the loss suffered as a result of wear and tear must be written off the profits, At the same time the assets will be reduced in value to show only its present value now that it has been partly worn out. -
DIFFERENT AUTHORS HA VE GIVEN DIFFERENT DEFINITIONS OF DEPRECIATION, SUCH AS:
"Depreciation is the gradual decrease in the efficiency of an asset expressed in monetary terms because of its usage and wear and fear".
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-, By the Author of the Book
"Depreciation may be defined as the permanent and continuous diminution In the quality, ty or value of an asset".
"Depreciation may be defined as a measure of the exhaustion of the effective life of an asset urn any cause during a given period".
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"Depreciation is the diminution in intrinsic value of asset due to use and/Or the lapse of time". - Terminology of the Institute of Cost & Management Accountants, England
"Depreciation is the reduction in value of a fixed asset occasioned by physical "wear and tear,
or the passage of time",
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From the above definitions it follows that an asset gradually declines on Account of use and passage ' time and this causes permanent reduction in the value and utility of asset. Self in the value or utility of asset is called depreciation. In other words, expired cost or utility of asset is depreciation.