Depreciation fundamentals of accounting comment on depreciation,” on

Depreciation accounting is as old
as the business system. It has been mostly treated as a topic for accounting
theory. As a result complete and independent texts on this subject are not too
many. At the same time, being a topic of vital concern to ongoing business, it
has received considerable attention from experts and researchers in business
journals and professional conventions particularly in period of inflation. Some
doctoral researches are also found in this field. The main motive of this
review is to have a look on the perceptive articles and academic research
outputs. No doubt much has been said on the subject of depreciation still it is
a controversial topic. As Sidney Davidson and others (1956) in book
fundamentals of accounting comment on depreciation,” on no subject in
accounting has there been so much written and so much as confusion as on the
subject.” The subject of depreciation is controversial and it also creates
confusion. The experts are agreeable on this point but they seem to be critical
against the work done in this area by other, as most of the articles available
in the literature of depreciation accounting are mostly the critical review of
the work done by the others. This review is intended to provide a background to
study that is being undertaken. Now we will consider different empirical
studies as well as other literature (articles and research works) pertaining to
depreciation. The researcher has tried to analyze the literature available

Objective of study

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Following is the sole objective
of study:

·      To study the views of various
authors regarding the different aspects of depreciation worldwide.


For reviewing the literature depreciation is studied
under different heads viz. purpose(s) of providing depreciation (as for
replacement of asset, for amortization of asset, for addition to cost of
product), methods of depreciation, under changing price levels, depreciation
and taxation and last but not least depreciation as source of fund. The views
of various authors have been compiled for the study in hand.

Depreciation for replacement of

Mason (1935) critcised the concept of depreciation
being used as provision for replacements. In an article “Depreciation and
Financing of Replacements” he explained that the philosophical concept of
depreciation as a provision for replacements was indefensible. It was illogical
it had been leading to an inequitable distribution of costs and to misleading
statements of income and financial condition. Edwards (1961) extended his
contribution to the existing literature by presenting an article
“Depreciation and the Maintenance of Real Capital”. In this study
different concepts of replacements, in terms of their economic significance and
their relevance to the determination of depreciation charges under number of
circumstances including stationary conditions, growth, price and price level
movements and changes in demand and technology, had been explored. The study
suggested that if depreciation was viewed as measure of funds necessary should
the firm wish to replace exhausted service values, the concept of physical
replacement, must be discarded and a concept based on value, specifically
current value, substituted for it. Rathor (1966) considered depreciation as a
technique of conserving funds in an organization for the replacement of
depreciated assets. Charles (1966) considered depreciation as an accounting
process of amortising the cost of an asset over its useful life and it would
not provide fund for replacement of a particular asset or assets. Majumdar
(1977) in his research titled “Replacement Accounting for Fixed assets”,
concluded from several case studies that there was a greater tendency for
depreciation provision to be invested internally, there was no instance where
depreciation provision was found to be invested externally and the internal
investments tendered to be in current assets. This study was not able to trace
to what extent depreciation provisions were utilized for replacing of fixed
assets. Ebling (1987) explained the purpose(s) of providing depreciation were to
provide for the future replacement of assets, to reflect the loss of the value
of fixed asset during its life and to allocate cost against revenues.

Depreciation for Amortization of Fixed Assets

Grady (1950) suggested that provisions for amortisation of depreciable
tangible fixed assets must be made regularly, the condition of the depreciable
properties must be studied regularly e.g every five years so as to revise the
annual amortisation, if necessary and Production method of amortisation might
be adopted if the business enterprise is subject to the important variations in
the volume of the business. Charles (1966) considered depreciation as an
accounting process of amortising the cost of an asset over its useful life and
it would not provide fund for replacement of a particular asset or assets.


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