Depreciation – Part 2

There are also other reasons for depreciation and that are

• Obsolescence
• Wear and tear
• Perishability
• Usage right
• Natural causes

Obsolescence

It comes from the word obsolete. Do you know what is typewriter. If you don’t know, I suggest you can browse the net and take a look at the thing. Years ago, people use that to type letters etc. And now, people seldom use that unless you have a power failure or a times of emergency. It is now being replaced by the computer. We can say that the typewriter is now obsolete and may cause inefficiency.

Wear and tear

Things will be old. Humans also growing old and older by the day. Like I was saying previously, you purchased a mobile phone and the usage of the mobile phone will eventually makes the phone looks old. Even when you have a new car today, what will your car looks in the next 5 years? Clothes…the colour will gradually changed and end up as a cloth for wiping tables!

Perishability

Some asset has a very short life span. Mostly applicable to inventory. Did you notice that there is an expiry date on the bottle of milk you purchase from the convenient store or a loaf of bread, there must be an expiry date. That time limit is also the sign of depreciation. Of course the milk is still fresh within the period and  still safe to drink until the last date. But do you want to drink a milk that will expire tomorrow.? I don’t think so…

Usage right

The usage right is quite similar to the above concept. We take a software for example. Sometimes you purchase a program at a very high cost but the usage is only for a couple of years. So the software will be self terminated at due time. For instance, like any other antivirus software…it lasts only one year. then it will continue to updating new database as you extended or purchased new license.

Natural causes

Erosion, rust, rot and decay, that are some of the natural causes that cause the depreciation. Land facing erosion, steel rust, wood will rot and teeth will decay. We cannot stop that because its natural. So everything depreciates.