Internal Causes of Depreciation

Internal Causes of Depreciation

Depreciation is the measure of wearing out of a fixed asset. All fixed assets are expected to be less efficient as time goes on and as they are continuously used in a business, for example.

The causes of depreciation may be internal or external. The internal causes arise from operation of any cause natural to or inherent in the asset itself. External causes arise from the operation of forces outside the business.

Internal Causes

  • Wear and tear: Wear and tear is an important cause of depreciation in case of tangible fixed asset. Any asset will gradually break down over a certain usage period, as parts wear out and need to be replaced. It is due to use of the asset. Other assets, such as buildings, can be repaired and upgraded for long periods of time.
  • Disuse: When a machine is kept continuously idle, it becomes potentially less useful.
  • Maintenance: The value of machine deteriorates rapidly because of lack of proper maintenance.
  • Depletion: With the raising of coal from coal mine the total deposit reduces gradually and after sometime it will be fully exhausted. Then its value will be reduced to nil. It refers to the physical deterioration by the exhaustion of natural resources eg., mines, quarries, oil wells etc.

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