11th NCERT Accountancy Chapter 7

Depreciation refers to the systematic allocation of the cost of a tangible asset over its useful life to match its cost with revenue it helps to generate.

The need for providing depreciation arises from the fact that assets lose value over time due to wear and tear, obsolescence, etc. Depreciation helps in spreading the cost of the asset over its useful life and matching it with the revenue it helps to generate.

Depreciation can be caused by physical wear and tear, technological obsolescence, passage of time, decay, or inadequacy of the asset to meet new requirements.

The amount of depreciation is affected by factors such as the cost of the asset, its expected useful life, the estimated residual value, and the chosen method of depreciation.

The straight-line method allocates an equal amount of depreciation each year, while the written down value method applies depreciation based on the reducing balance of the asset's book value. The straight-line method results in a constant depreciation expense per year, whereas the written down value method usually leads to higher depreciation charges in the earlier years of an asset's life.