Depreciation is "a measure of the wearing out consumption or other loss of value of depreciable asset arising frony use, effluxion of time or obsolescence through technology and market change. Depreciation is allocated so as to charge fair proportion of depreciable amount in each accounting period during the expected useful life of the asset. Depreciation includes amortisation of assets whose useful life is predetermined".

Obsolescence means the fact of being out-of-date. Obsolescence implies that existing assets become out-of-date on account of the availability of better type of assets. It arises from factors such as :
(i) Technological changes.
(ii) Improvements in production methods.
(iii) Change in market demands for the product or services output of the asset.
(iv) Legal or other description.

Amortisation refers to writing-off the cost of intangible assets like patents, copyright, trademarks, franchises, leasehold, mines which are entitlements to use for a specific period of time. The procedure for amortisation or periodic write-off of a portion of the cost of intangible assets, is the same as that for the depreciation of fixed assets.
For example: if a business firm buys a patent for Rs. 10,00,000 and estimates that its useful life will be 10 years, then the business firm must write-off Rs. 10,00,000 over 10 years. The amount so written-off is technically referred to as amortisation.

The term 'Depletion' refers to the physical deterioration by the exhaustion of natural resources like quarries, mines, oil wells, etc. Due to mining or extraction, the stock of minerals, oil etc. is depleted! reduced. In case of such assets, usually depreciation is charged on the basis of quantity produced.

Depreciation means decrease in the value of fixed assets due to their use in business, passage of time or obsolescence. In accounting, this term denotes the permanent decrease in the book value of a fixed asset. Every asset has a definite useful life after which it becomes useless. It will be appropriate to write-off its cost over its life on the basis of benefit derived from it on some reasonable basis.
Depreciation = \(\frac { (Value \ of \ Fixed \ Assets+Installation \ changes)-Scrap \ Value }{ Estimated \ life(Number \ of \ years) } \)

Depreciation is a gradual decrease in the value of fixed assets due to wear and tear, usage and obsolescence, etc.

In the Books of ...

Working Notes

Depreciation = \(\frac { 1,00,000-10,000 }{ 10 } \)
= \(\frac { 1,00,000 }{ 10 } \)
Depreciation = Rs 10,000 p.a.
In the Books of