Depreciation 

It is the gradual exhaustion of the usefulness of a property. This may be defined as the decrease or loss in the value of a property due to structural deterioration, life wear and tear, decay, and obsolescence.

Methods of depreciation

Different methods to calculate depreciation are as follows :

a) Straight-line method

b) Constant percentage method

c) Sinking fund method

d) Quantity survey method

• Straight line method: It is the simplest method of depreciation. In this method it is assumed that the book value of an asset will decrease by same amount every year over the useful life till its salvage value is reached. In other words, the book value of the asset decreases at a linear rate with the time period.
• Constant percentage method: In this method, it is assumed that the property will lose its value by a constant percentage of its value at the beginning of every year.
• Sinking Fund Method: In this method, the depreciation of a property is assumed to be equal to the annual sinking fund plus the interest on the fund for that year, which is supposed to be invested on interest bearing investment.