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Question

Explain basic factors affecting the amount of depreciation.

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Solution

Factors affecting the amount of depreciation :

1. Historical cost - Historical cost of a depreciable asset implies the cost incurred on its acquisition, installation, commissioning and for additions to or improvements thereof which are of capital nature.

2. Expected useful life - Expected useful life of a depreciable asset implies either the period over which a depreciable asset is expected to be used by the enterprise or the number of production or similar units expected to be obtained from the use of the asset by the enterprise.

3. Estimated residual value - Estimated residual value of a depreciable asset implies the value expected to be realised on its sale or exchange on the expiry of its useful life.

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