Q.State the factors that determine the amount of depreciation to be charged on a fixed asset.

Depreciation is not an arbitrary figure — it is computed from a fixed set of known inputs about the asset.

The amount of depreciation charged each year is determined by the following factors:

1. Original (historical) cost — the purchase price plus every cost needed to bring the asset to working condition (freight, installation, erection/trial-run charges). Depreciation is always calculated on this full cost.
2. Estimated useful life — the number of years (or, for a wasting asset, the estimated total output) the asset is expected to remain usable.
3. Estimated scrap (residual) value — the amount expected to be realised on disposal at the end of useful life; only cost minus this residual value is spread as depreciation.
4. Additions and extensions — any addition made during the asset's life needs its own depreciation from the date it is added.
5. Legal or contractual provisions — e.g., a lease's fixed period, or a patent's statutory term, which fix the period over which cost must be written off. …

Naming only 'cost and life' and forgetting scrap value, additions, or that the method itself changes the figure; confusing 'original cost' with …