Depreciation

Any fixed asset becomes less efficient with the passage of time, thus reducing its quality and value. This is called Depreciation. The value of an asset, which is significantly lesser than its original value at the end of every financial year is called the Net Book Value of the asset.

Among many methods of depreciation calculation, it is commonly done by the following methods:

• Diminishing Balance Method
• Straight Line or Fixed Instalment Method
• Machine Hour Rate Method

Let’s say you own a machinery whose value is Rs. 1 lakh at the beginning of a financial year. After an year, the machine’s efficiency reduces. Eventually, its value decreases to Rs. 80,000. This value is called the Net Book Value of the machine at the end of a financial year.

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Related Terms

• Day Book
• Double Entry System
• Debit
• Debt Ratio
• Debt to Equity Ratio
• Deflation
• Drawings
• Debit Note
• Deferred Revenue