Q.Write a short note on: Obsolescence.

Amortisation is the systematic allocation of the cost of an intangible asset over its useful life.

When the cost of a long-term asset is spread over the years it benefits the business, different terms are used depending on the asset:

• Depreciation — for tangible fixed assets (machinery, furniture, buildings).
• Depletion — for wasting/natural-resource assets (mines, oil wells).
• Amortisation — for intangible assets (goodwill, patents, trademarks, copyrights). …

Depreciation is caused by usage, obsolescence and lapse of time, so all three together are correct.

Depreciation is the gradual and permanent decrease in the value of a fixed asset. Its main causes are:

• Usage (wear and tear) — continuous use of the asset in operations reduces its value.
• Obsolescence — the asset becomes out of date due to new technology, improved models or changes in demand.
• Lapse (effluxion) of time — some assets lose value simply with the passage of time (e.g. leases), regardless of use. …

Depreciation is calculated from the date the asset is put to use, so the answer is (b).

Depreciation represents the loss in value of a fixed asset due to wear and tear, use, and passage of time as it helps earn revenue. The matching concept requires this cost to be spread over the period during which the asset actually contributes to the business.

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Residual (scrap/salvage) value is the amount an asset can fetch on sale at the end of its useful life — option (a).

Meaning:

• Residual value (also called scrap or salvage value) is the estimated realisable value of an asset at the end of its useful (working) life, when it is no longer fit for the intended use. …