Accountancy · Ch 7 — Depreciation, Provisions and Reserves
Wear and Tear due to Use or Passage of Time
Wear and Tear due to Use or Passage of Time
Wear and tear is the physical deterioration of a fixed asset caused by its use in business operations. Every time a machine runs, a vehicle is driven, or furniture is handled, the asset loses a small part of its original efficiency and value. This loss is not a sudden accident — it is a gradual, continuous process that happens because the asset is being used to earn revenue.
The key accounting idea here is that this loss of value is an expense of the period in which the use occurs. Since the asset helps generate revenue, the cost of its wear and tear must be matched against that revenue. That is why we record depreciation — it is the systematic allocation of the asset's cost over its useful life, representing the wear and tear that has taken place.
Wear and tear reduces the asset's technical capacity to perform the work it was meant for. A machine that once produced 100 units per hour may, after years of use, produce only 70 units per hour — even if it is still running.
There is a second, subtler aspect of wear and tear: physical deterioration that happens simply with the passage of time, even when the asset is not being used at all. This occurs especially when assets are exposed to the rigours of nature — weather, wind, rain, humidity, and temperature changes. A building left unused still suffers from leaking roofs, cracked walls, and rusted fittings. A machine stored in the open corrodes. This kind of deterioration is also a form of wear and tear, and it too reduces the asset's value.
Whether the asset is used daily or left idle, the passage of time alone can cause it to lose value. Depreciation must therefore be charged even on idle assets, because the loss is real.
The accounting treatment for wear and tear is the same regardless of which cause is at work. At the end of each accounting period, the estimated amount of depreciation is recorded through a journal entry:
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| Depreciation A/c ………Dr. | [Amount] | |||
| To Asset A/c | [Amount] | |||
| (Being depreciation charged on the asset for the period) |
The Depreciation Account is a nominal account — it is debited because depreciation is an expense. The Asset Account is credited because the value of the asset is being reduced. At the end of the year, the Depreciation Account is closed by transferring its balance to the Profit & Loss Account:
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) | …