What is Depreciation?
Depreciation accounting is a system of accounting which aims to distribute the cost or other basic value of tangible capital assets, less salvage, if any, over the estimated useful life of the unit which maybe a group of assets, in a systematic and rational manner. It is a process of allocation, not of valuation.
Depreciation is the portion of the cost or other basic value of a tangible capital asset allocated or charged as expense during an accounting period. Thus, the objection of depreciation accounting is to have each period benefiting from the use of the asset bear an equitable share of the asset cost. systematic allocation of the depreciable amount of the property plant and equipment over its useful life. In layman’s terms, depreciation is a decrease in value of an asset.
Depreciation is an expense. It may be a part of the cost of goods manufactured or an operating expense. Except for inexhaustible assets such as land and art collections, all property should be depreciated on a rational and systematic basis over the life of the assets irrespective of the earnings of the enterprise.