Glossary · Accounting & Audit
Depreciation
The systematic allocation of the cost of a tangible fixed asset over its useful economic life.
Depreciation is a non-cash expense that reduces the book value of an asset each year. The Income Tax Act prescribes depreciation rates per block of assets (15% on plant and machinery, 10% on buildings). Companies Act requires depreciation based on useful life prescribed in Schedule II. Method allowed under the Act is WDV (Written Down Value), while Ind AS requires depreciation based on the pattern of economic benefits (often straight-line).
Examples
A company buys machinery for ₹10 lakh. At 15% WDV, year 1 depreciation is ₹1.5 lakh, year 2 is ₹1.275 lakh on the remaining ₹8.5 lakh.