0Dear students,
Depreciation refers to a phenomenon where the value of a fixed asset falls year on year. This change is due to obsolescence in technology, efflux of time and wear and tear of the fixed asset with usage.
The depreciation is calculated as per two commonly practised methods-
1. Straight line or original cost method
2. Written Down Value or Reducing balance method.
The accountant calculates depreciation on a fixed asset at the original cost price each year under the first method. In the second method, however, the depreciation is calculated on the opening balance of the value of the asset. Thus under the second method, the value of depreciation differs, but it remains the same in the first method.
Regards
