1. Depreciation Accounting
Meaning:
Depreciation means fall in the value of the asset. AS 1-29 govern accounting method followed in the preparation of balance sheet in India. Pickles defined depreciation as “The permanent and continuing diminution in the quality, quantity or value of an asset.”
It is important to note that depreciation is charged on almost all fixed assets except forests, plantations and similar regenerative natural resources. In other words if land has a limited useful life for the enterprise then it can be depreciated.

2. Characteristics Measure of wearing out
Reduces the book value of the asset but not its market value
Takes place gradually unless there is a quick physical deterioration or obsolescence due to technological developments
Process of allocation of cost of the asset to the useful life of the asset.

3. Related concepts
Depletion- It is used in relation to extraction of natural rsources like quarries, mines that reduces the availability of quantity of the material or asset
Obsolescence- refers to the decrease in usefulness caused on account of the asset becoming out of date, old fashioned.
Amortization- refers to writing off proportionate value of the intangibles such as goodwill, copyrights, patents etc.

4. Case
Mr. A starts a small manufacturing business and buys machinery worth Rs. 2 lakh
He does not depreciate machinery every year and therefore uses up all the profits which his business generates.
By the end of 5 years he has earned a total income of 4 lakh without considering depreciation.
The machinery bought by A is useless at the end of 5th year. It is clear that net income to Mr. A is not Rs. 4 lakh but only Rs. 2 lakh , because out of 4 lakh he must deduct the cost of machinery worth Rs. 2 lakh. Would it not have been better if he had dducted every year a due proportion of his expenditure on the machinery before ascertaining his profit.

5. Objectives of charging depreciation
To ascertain the profit or loss properly
To show the asset at its proper value
BASIS OF PROVIDING DEPRECIATION
Original cost of the asset
Estimated residual or scrap value at the end of its life
Estimated useful or commercial life or the legal life whichever is shorter.
METHODS FOR PROVIDING DEPRECIATION
Uniform charge methods
A) Fixed Installment Method
B) Depletion method
C) Machine hour rate method
Declining charge or accelerated depreciation methods
A) Diminishing balance method
B) Sum of year’s digits method
Revaluation method
Sinking Fund method

6. A firm bought machiney for Rs
A firm bought machiney for Rs on 1st April 2005 and its life was estimated
To be 8 Years> Its estimated scrap value at the end of the period was Rs
Calculate the amount of depreciation.
Depreciation= Cost- Estimated Scrap value
Number of years of expected useful life
=10000 per year.
A machine having a scrap value of 2000 os purchased for and it has an effective life of 10 years. If it is used for 1000 hours each year then, the amopunt of depreciation per hour will be computed as follows
Depreciation= Original cost-Scrap value
Life of the asset in hours
A firm purchases plant and machinery on 1st jan for It charges depreciation of diminshing balance method. The amount of depreciation in the third year will be
Depreciation rate is calculated as =1-n√Net Residual value
Acquisition cost
Cost of an asset is Rs and it has an effective life of 5 years. The amount of depreciation is as

7. Remainning life of the asset
Sum of all the digits of the life of the asset Yr
Yr. 2= 5333
A plant having a scrap value of Rs and a life of 5 years was purchased in January Calculate the amount of depreciation according to double declining rate.
40%

8. Disposal of Assets
When the assets wear out and are no longer usable, then they are sold or scrapped. On the disposal of an asset it may happen that the realizable value by the sale of the asset is equal to its book value or may be higher or lower than the book value.

9. Gain and loss under Income tax Law
For taxation purposes gain and loss on assets are calculated on block of asset. Under the income tax rules depreciation is charged on block of assets. Block of asset is defined as all assets on which same rate of depreciation applies. As long as the cash realized on sale of asset is less than the depreciable amount of the block to which the asset belongs, there is no need to recognise any gain for tax purposes.

10. Disposal of Assets
When the assets wear out and are no longer usable, then they are sold or scrapped. On the disposal of an asset it may happen that the realizable value by the sale of the asset is equal to its book value or may be higher or lower than the book value.

11. Gain and Loss under Income Tax Law
For taxation purposes gain or loss is calculated on block of assets. Block of assets is defined as all assets on which the same depreciation rate applies. As long as the cash realized on sale of assets is less than the depreciable amount of the block to which the assets belong, there is no need to recognise any gain for tax purposes. A gain will be realized only when the book value of the block at the time of disposal of an asset turns into a credit balance after the disposal value is credited and vice versa.

12. Revaluation of fixed assets
All assets in the books of account are to be recorded at their historical cost. But because of inflationor deflation it may happen that there is a significant difference in the book value of the asset and its real worth in the market. Since the objective of the balance sheet is to convey the true picture to the user, this historical concept of valuation prevents the company from reflecting the true worth. Revaluation is particularly required in the case of land and building since property value appreciates significantly. So the concept of revaluation has caught the attention of many accountants. Sometimes, the upward valuation of fixed assets is misused where a company revalues its fixed asset to present a healthier balance sheet.

13. Case Law
40. The accessories and peripherals of computers provide input processing, storage and various output devices. The output devices such as printer, scanner etc. are computer peripherals and form essential parts of PC. These output devices cannot work in isolation and also working on computer system without an output device such as printer would be futile. In view of the above, the claim of depreciation at 60% on printer, scanner and other computer peripherals is completely justified. The claim of depreciation of 60% further gets justified in view of the fact that even computer software which is installed on computer system supports the computer hardware and is eligible for depreciation at 60%.
41. As held by the Calcutta High Court decision in Jokai India Ltd. 251 ITR 39. in view of decision of Kolkata, ITAT in the case of ITO Vs. Sa Majumdar-2804TR~ 74, we hold that printers, scanners and other peripherals were part and parcel of computer and depreciation against such asset are 60%. This ground is to be decided in favour of the assessee and against the revenue in view of the decision of the Kolkata Bench `B’ of the Tribunal in the case of ITO vs. Samiran Majumdar (2006) 98 ITD 119 (Kol) wherein the Tribunal allowed the claim by observing as under :
“Therefore, the printer and scanner were integral part of the computer system and were to be treated as computer for the purposes of allowing higher rate of depreciation, i.e., 60 per cent and accordingly, no interference was required in the order passed by the Commissioner (Appeals) on that account.” Therefore, the effective ground remains with regard to deduction under section 80IA in respect of inland ports.
42. We accordingly uphold the order of the CIT(A) in allowing 60% on computer peripherals and accessories by treating them as computers