In daily life, we use many assets which could be Tangible or Intangible. Such assets have their
own life e.g. Building, Furniture, Machinery, etc. It is necessary to spread the cost over a number of
years during the useful life of the assets. This process of spreading the cost of fixed assets is termed
The word depreciation is derived from the Latin word ‘Depretium’ which means reduction.
Every business concern acquires some fixed assets which are used in the business for its trading
activity. These assets are purchased for business with an intention of permanent use and not for resale.
Working life of all fixed assets, except Land, decreases with the passage of time. The value of
these assets decrease every year. So, reduction in the value of fixed assets due to its Wear and Tear or
actual use is called as ‘Depreciation’.