Hi, friends let’s start with a fresh topic. The name of the topic is Depreciation. Let’s see what is that depreciation?
Our first module for depreciation, fixed assets versus goods and depreciation. So, here we want to see fixed assets, goods already known to us and what is
depreciation. So let’s understand introduction to the depreciation chapter. Now, fixed assets versus goods that is the subject matter for this particular
module. So, let’s understand. Fixed Assets are the assets, which are acquired by the businessman not for the purpose of re-sale, but for the purpose of
using them somewhere in the business for a longer period of time. So, we are buying certain assets, which we want to use for our business purpose and
obviously we are buying them or intention is to use them for a longer period of time, such assets are called as fixed asset. Let’s see some examples. Now
fixed assets, examples – machinery, so machinery used in the business for production purpose. After that furniture, it is used in a business or factory.
After that building, obviously without building it’s not possible for us to conduct the business activity, so we require certain central place to conduct
our business activities and then while doing the business we require certain vehicles. So, all such kinds of assets are called fixed assets. So, such
assets are purchased in a business and intended to use for a longer period of time. They are called as fixed assets. So, when we are buying our intention
is very clear, we want to use them in the business for a longer period of time and they are fixed assets. Now, continuous use of them and due to some other
reasons, continuously we are using them in our business, apart from that there are some other reasons their values goes on decreasing. So, value goes on
decreasing and such reduction in the value of fixed assets is known as depreciation. So, depreciation, meaning of depreciation in simple words, values of
fixed assets decreased and the decrease is mainly because of use of fixed assets, so that reduction is called as depreciation.
Let’s continue with this. Now, take one example, this is the first year of machinery purchased for the business. So, very new machinery, you can understand
by looking at the physical appearance of this particular machinery. We put that particular machinery in use, after using it for one year, now the condition
is like this, after third year, I mean to say after using it for three years now the condition is like this. After that, fourth year now again it is
deteriorated, and then fifth year, if you observe it physically then we find that again it is damaged. So, this is happened because of using of this
particular machinery continuously. And now from this you can understand, with the usage of fixed assets, the physical life as well as economical life goes
on decreasing. Obviously, we are using physically as well as economically because the productivity will be affected, it goes on decreasing over the period
of time. So, continuously we are using this particular machinery and such continuous use goes on decreasing the value of the asset. So, likewise the value
of fixed assets also goes on decreasing. And then after that, day by day the value of year will keep on decreasing when we are using it for a business.
Such fall in the value of fixed assets is called as depreciation. So, when we use the asset, its value decreases and that reduction is called as
So, the word depreciation is derived from the Latin word, Depretium which means reduction, decrease, decline etc. in the value. So, originated from Latin
language, the word is Depretium, so meaning is reduction, decrease or decline. Here, the value of fixed asset is declining and so we are using the word
depreciation. Depreciation is mainly because of wear and tear of fixed assets and also due to some other factors like efflux of time, obsolescence etc. So,
a number of reasons are there but the main cause is wear and tear of that particular asset. So, depreciation is treated as loss to the business. Obviously,
value of our fixed assets goes on decreasing and so that reduction is treated as loss to our business.

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