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Features of Depreciation

The following are the features of depreciation:
  1. It is decline in the book value of fixed assets.
  2. It includes loss of value due to efflux ion of time, usage or obsolescence.
For example, a business firm buys a machine for Rs. 1, 00,000 on April 01, 2000. In the year 2002, a new version of the machine arrives in the market. As a result, the machine bought by the business firm becomes outdated. The resultant decline in the value of old machine is caused by obsolescence.
  1. It is a continuing process.
  2. It is an expired cost and therefore it must be deducted before calculating taxable profits.

For example, if profit before depreciation and tax is Rs. 50,000, and depreciation is Rs. 10,000; profit before tax will be:


  1. It is a non-cash expense. It does not involve any cash outflow. It is the process of writing-off the capital expenditure already incurred.

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