Meaning of Depreciation :

A business enterprise acquires different types of fixed assets depending upon its requirements and financial conditions. Fixed assets have a long life and are held for use in the business for production of goods and services. Whenever an asset is used in business its value gets reduced and sooner or later the asset becomes useless. Depreciation is a permanent, continuous and gradual shrinkage in the book value of a fixed asset. It is the fall in the quality or value of a fixed asset through physical wear and tear due to use or passage of time or from any other cause. Depreciation takes place irrespective of regular repairs and maintenance. As the asset is used for business purpose, the annual loss in the value of the asset is like any other expenditure. Hence, the cost of fixed assets has to be written off over its useful economic life as a loss. Thus, depreciation is a process of allocating the cost of a fixed asset over its estimated useful life in a rational and systematic manner.