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causes of depreciation

Among other factors, the two main factors that contribute to the decline in the usefulness of fixed assets are deterioration and obsolescence. Deterioration is the physical process wearing out whereas obsolescence refers to loss of usefulness due to the development of improved equipment or processes, changes in style or other causes not related to the physical conditions of the asset. The other causes of depreciation are:

1. Efflux of time – mere passage of time will cause a fall in the value of an asset even if it is not used.
2. Accidents – an asset may reduce in value because of meeting with an accident.
3. Fall in market price – a sudden fall in the market price of the asset reduces its value even if it remains brand new.

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