Causes of Depreciation

(i) Physical Wear and Tear Resulting from Use: Tangible fixed assets like, machinery, buildings, furniture etc. get worn out or torn out on account of friction, strain, weathering, intensity of use, chemical reaction, handling etc. This is the most important cause of charging depreciation in respect of such assets which are in constant use.

(ii) Physical Deterioration Resulting from Atmospheric Exposure: Number of assets deteriorates for being continually exposed nature.

(iii) Passage of Time: A machine also becomes potentially useless by the passage of time. It is so even if the machine is kept continuously idle.

(iv) Depletion: Wasting assets such as mines and quarries lose their value because they get exhausted on account of continuous extractions.

(v) Obsolescence: Sometimes an asset becomes useless because of technical changes within the industry, technical progress in other industries, changes in tastes and habits of consumers, changes in supply and locations of natural resources etc.