Explain the basic factors affecting the amount of depreciation. (2024)

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Explain the basic factors affecting the amount of depreciation.? ›

There are three basic things which are required to charge depreciation viz, cost, estimated useful life and probable salvage value; these are the three things which affect the amount of depreciation.

The age and condition of an asset are two factors that can greatly affect its depreciation rate. Generally, the older an asset is, the more it will depreciate over time. This is because older assets are more likely to experience wear and tear, and may require more maintenance and repairs.

There are several causes of depreciation, which can be broadly classified into four categories: Physical Deterioration, Functional Obsolescence, Economic Factors, and Legal or Other Factors. Physical Deterioration is the most common cause of depreciation. It occurs due to wear and tear of the asset over time.

1) Cost of the asset. 2) The residual value of the asset or the value that the owner will procure, at the time of giving up the asset by the mean of selling or trading. 3) The useful life of the asset or the time for which the owner is expecting to keep the asset for use.

Depreciation is a decrease in the book value of fixed assets. Depreciation involves loss of value of assets due to the passage of time and obsolescence. Depreciation is an ongoing process until the end of the life of assets.

Repair of an asset is not a reason for depreciation.