American the purpose of sale in the ordinary course

American
Accounting Association describes
depreciation as,      ” Any decline
in the service potential of plant and other long term assets should be
recognized in the accounts in the periods in which such decline occurs. The
service potential of assets may decline because of gradual or abrupt physical
deterioration, consumption of service potential through use even though no
physical change is apparent, because of obsolescence or a change in consumer
demand. So this definition takes only valuation of assets.”

Institute
of Chartered Accountants in Austria
says, ” Depreciation represents that part of the cost of a fixed asset to
its owner which is not recoverable when asset is finally put out of use by him.
Provision against this loss of capital is an integral cost of conducting the
business during the effective commercial life of the asset and is not dependent
upon the amount of profit earned.”

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Indian
Accounting Standard – 6 (AS-6)
which was revised in August 1994 and was mandatory in respect of accounts for
periods commencing on or after 1.4.1995 defines,” Depreciation is a
measure of wearing out, consumption or other loss of value of a depreciable
asset arising from use, effluxion of time or obsolescence through technology
and market changes. Depreciation is allocated so as to charge a fair proportion
of the depreciable amount in each accounting period during the expected useful
life of the asset. Depreciation includes amortization of assets whose useful
life is predetermined.”

AS-6 also explains
the word depreciable assets as assets which:

i)                   
are
expected to be used during more than one accounting period; and

ii)                 
have
a limited useful life; and

iii)               
are
held by an enterprise for use in production or supply of goods and services,
For rentals to others, or for administrative purposes and

iv)               
not
for the purpose of sale in the ordinary course of business.

According to FRS-15, The Accounting Standard of United Kingdom and Republic of
Ireland, ” The fundamental
objective of depreciation is to reflect in operating profit the cost of use of
the tangible fixed assets (i.e. the amount of economic benefit consumed by the
entity) in the period. Therefore, the depreciable amount (i.e. cost or revalued
amount, less residual value) of a tangible fixed asset should be recognized in
the profit and loss account on a systematic basis that reflects as fairly as
possible the pattern in which the asset’s economic benefits are consumed by
entity, over its useful economic life.” (Summary paragraph FRS-15).

Further following are the words of Australian Accounting Standard (AASB-1021)
on Depreciation, ” The depreciable amount
of a depreciable asset must be allocated on a systematic basis over its useful
life. The depreciation method applied to an asset must reflect the pattern in
which the asset’s future economic benefits are consumed or lost by the entity.
The allocation of the depreciable amount must be recognized as an expense,
except to the extent that the amount allocated is included in the carrying
amount of another asset.” (paragraph 5.1 AASB-1021 Australia)

United
States Supreme Court,
in Lindheimer vs. Illnois Bell Telephone Company case, defines depreciation,  ” Broadly speaking, depreciation is the
loss, not restored by current maintenance, which is due to all factors causing
the ultimate retirement of property. These factors embrace wear and tear,
decay, inadequacy and obsolescence. Annual depreciation is the loss that takes
place in a year.”

Whereas Statement of Standard Accounting Practice (SSAP-12) says, ”
Depreciation is a measure of the wearing out, Consumption or other permanent
loss of value of fixed assets whether arising from Use, Efflux of time or Obsolescence
through Technological or Market changes. Depreciation should be allocated so as
to charge a fair proportion of cost or valuation, to each accounting period
expected to benefit from the use of an asset.”

In the words of Anthony and Reece, ” With the
exception of land, most items of plant and equipment have a limited useful
life; that is, they will provide service to the entity over a limited number of
future accounting periods. A fraction of the cost of the asset is therefore
properly chargeable as an expense in each of the accounting periods in which
the asset provides service to the entity, the accounting process for this
gradual conversion of plant and equipment capitalized cost into expense is
called depreciation.  Depreciation
expense does not represent the shrinkage in the real value during the
accounting period,  physically the
machine may be useful and as valuable at the end of the period as it was at the
beginning. Neither does the net book value represent the market value of the
assets on hand. Depreciation expense is a write off of a portion of the cost of
asset, and it follows that the net book value of fixed assets reported on the
balance sheet represents only that portion of the original cost of fixed asset
which has not yet been charged to expense.”