Question

Several pronouncements by authoritative accounting bodies deal with depreciation. List the pronouncements dealing with depreciation. What is FASB's current definition of depreciation?

Answer 1

According to Institute of Cost and Management Accounting, London{ICMA} "The depreciation is the diminution in intrinsic value of the asset due to use and/or lapse of time."

The Institute of Chartered Accountants of India, says " a measure of the wearing out, consumption or other loss of value of depreciable asset arising from use, effluxion of time or obselescence through technology and market change.Depreciation is allocated so as to charge fair proporation of depreciable amount in each accounting period during the expected useful life of the asset. Depreciation includes amortisation of assets whose useful life is pre-determined,"

International Accounting Standard 16 - " Depreciation as 'the systematic allocation of the depreciable amount of an asset over its useful life' it requires that depreciation should be recognised as an expense in the statement of profit or loss, unless it is permitted to be included in the carrying amount of another asset.'

FASB's current Definition " Depreciation accounting "is a process of allocation, not of valuation" and describes it as the expense that results from the systematic and rational allocation of the cost of a productive policy or other tangible capital asset, less salvage, as equitably as possible to the periods during which services are obtained.