Aspects of Depreciation’s and its Applications

By: - Shri Arun V. Gijre
Chartered Engineer & Valuer.
Paper at PVAI CEP Nagpur 2004

 

Definition of “Depreciation” as applied to



1. Real Estates,

2. Plants and machineries,

3. Furniture’s is insufficient.

 

The depreciation should be defined as the

 

1. Loss of Value of the commodity over it’s life due to use.

2. Wear and tear –in spite of maintenance.

Obsolescence is the special case of Depreciation, where in the loss of value is due to getting “Out of Fashion” or Out of trends.

In Obsolescence the Commodity suffers the loss of values even though it has balance of useful life. Obsolescence may takes place, even before the property is put to use, and exposed to wear and tear.

 

Situation for the application of depreciation.:-

 

1. The structure becomes eligible for depreciation provided.

2. The structure is complete and is put to use.

3. The structure should get the nourishment and recoupement of life though proper maintenance.

4. The structure should lead normal life, but if the structure undergoes “injuries” in particular period of life, the loss of value due to injury cannot form part of the depreciation.

5. The present methods of calculating the depreciation by straight line, percentage basis, Estimation etc. Do not produce accuracy. New methods of arriving at the depreciation with converging accuracy need to be evolved.

6. The scale of Depreciation is to be evolved. Presently it is calculated on “scrap value” or “salvage value” only. Environmental impact and hazards of life style should be considered while arriving at depreciation rate.