Question

Which of the following is the cause of Depreciation of fixed assets ? ​

Answer 1

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The causes of depreciation are: Wear and tear. Any asset will gradually break down over a certain usage period, as parts wear out and need to be replaced. Eventually, the asset can no longer be repaired, and must be disposed of.

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Answer 2

Answer:

1. Wear and Tear
2. Natural Resource Usage
3. Inefficiency/Obsolescence
4. Perishability
5. Usage Rights

Explanation:

Depreciation occurs through normal wear and tear, regular use, passage of time, or obsolescence of technology. These are some of the major causes of depreciation. It is charged  to the income statement each year so that the cost of acquisition is spread evenly over the years.

1. Assets gradually fail over the course of their useful life as parts wear out and require replacement. Eventually the asset becomes irreparable and must be scrapped. This cause is most common in production equipment, which usually has a lifespan recommended by the manufacturer based on a specific number of units produced. Other assets, such as buildings, can be repaired and upgraded over time.
2. If the asset is a natural resource, for example, oil and gas reservoirs, they experience depreciation when the resource is depleted (in this case it is called depletion, not depreciation). If companies later change their reserve estimates, the pace of depletion could change.
3. Some equipment has been made obsolete by more efficient equipment, reducing the usability of the original equipment.
4. Some assets have a very short lifespan. This condition applies to inventory, not fixed assets.
5. An item of property, plant and equipment may actually be the right to use something (such as software or a database) for a  period of time. In this case, the useful life ends with the expiration of the right of use, so depreciation must be completed by the end of the useful life.

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