Higher the useful life, lower will be the amount of depreciation charge. To give a simplified example, if a machine is bought for $10,000 but only has a useful lifespan of five years, then every year, the value of this machine will decline by $2,000. It is charged every year to the Profit and Loss account so that cost of asset is equally divided over the years. Depreciation is a ratable reduction in the carrying amount of a fixed asset.Depreciation is intended to roughly reflect the actual consumption of the underlying asset, so that the carrying amount of the asset has been reduced to its salvage value by the time its useful life is over. Currency depreciation occurs when the value of a particular currency falls during a specific relative to other world currencies. In general, there are two main causes of depreciation: Physical Factor. The Causes of Depreciation Depreciation occurs because of decline in the usefulness of the asset. Capital depreciation refers to the decline in value of a capital asset. This causes the exports of goods to increase and reduces the supply and availability of goods in the domestic market which tends to raise the domestic price level. A depreciation of the dollar has beneficial and expansionary impacts on the domestic economy with valuation effects and purchasing power being the only losses. Depreciation of assets can also be caused by the inability of assets to meet production needs, so that they need to be replaced with new ones. What are the Causes of Depreciation? Functional Factor. Second, depreciation makes the exports cheaper and therefore more com­petitive in the world markets. Q: Analyse the causes and effects of a depreciation of the AUD on the domestic economy. The Causes of Depreciation. In economics, depreciation is basically the symptoms of an underlying problem, specifically imbalances in the Balance of Payment (BOP), emanating from excess demand for dollars. But why do we need depreciation at all? Depreciation is the value reduction in the carrying amount of the fixed asset (or property plant & equipment) from period to period which is charged in the statement of profit & loss of organization for the same period to provide the reasonable cost of … Both obsolescence and physical endurance must be considered in estimating the useful life. (b) Useful or Economic Life: Estimation of economic life of a fixed asset is a very difficult task. The amount of depreciation depends mainly on the useful working life of the asset. In economics, depreciation is basically the symptoms of an underlying problem, specifically imbalances in the Balance of Payment (BOP), emanating from excess demand for dollars. These are some of the major causes of depreciation. Causes of Depreciation. The value of company’s assets can shrink due to overuse, aging, and damage. After three years, the machine… Economic depreciation can sometimes come about due to changes in the zoning for a given area. Depreciation occurs due to normal wear and tear, regular consumption, passage of time or obsolescence of technology. For example, if an area was once zoned for residential use only, but the zoning is later changed to allow commercial enterprises as well as residences in the area, this may cause the value of certain properties to drop as big businesses such as factories replace tracts of houses. Factors such as a country's economic condition, monetary policy and global market conditions impact currencies on a regular basis. The causes for the decline in the usefulness of the asset may be divided into two categories; namely (a) Physical and (b) Functional, The Causes of Depreciation assignment help, The Causes of Depreciation homework help, reasons for depreciation, cause of depreciation, , aging, and damage passage of time or obsolescence of technology more in. 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