Coupon Accepted Successfully!



It is a process of allocation and not valuation. So it must be clearly understood that the process of charging depreciation is the accountant’s technique of recovering the cost of fixed assets over a period.

Depreciable Assets

According to AS-6, the accounting standard issued by the Council of the Institute of Chartered Accountants of India, depreciable assets are assets which:

  • Are expected to be used during more than one accounting period
  • Have a limited useful life
  • Are held by an enterprise for use in the production or supply of goods and services, for rental to others, or for administrative purposes and not for the purposeof sale in the ordinary course of business.

Categories of Fixed Assests

Fixed assets are:

Tangible Fixed Assets: The term “tangible fixed assets” is used to express those types of assets which have bodily substance, e.g. Land, Building, Machinery, Furniture, Vehicles. These assets can further be divided into three parts:


Land: This asset is the only asset, which has an unlimited term of existence. The cost of it is not allocated (depreciation, explained later in the chapter) to the years of benefit.

Machinery, Furniture, Vehicles. These assets have limited life and their costs are spread over the years of benefit.

Natural resources or wasting assets. Examples of such assets are oil fields, mines and quarries, which are subject to exhaustion through extraction. The periodic charges are over the years of benefit.

Intangible Fixed Assets

The term “intangible fixed assets” is used to describe those assets, which lack physical substance. Examples are patents, copyrights, trademarks, leaseholds, goodwill, and organisation costs.



Test Your Skills Now!
Take a Quiz now
Reviewer Name