We are already familiar with the distinction between revenue expenditure and capital expenditure. We are aware that when the benefit of an expenditure is available beyond the accounting year (for one or more years) such an expenditure is treated as capital expenditure and it often results in acquisition of an asset. Since many accounting years are likely to receive benefits on account of the use-of such an asset, the cost of investment must necessarily be allocated over the period of its useful life and charged to the Profit and Loss Account. Allocation of the appropriate amount to each period is called depreciation which represents the expired portion of, the cost of an asset.

It would be useful to discuss different definitions given by various authorities in the subject for a proper appreciation of the meaning of depreciation.

Pickles defined depreciation as "the permanent and continuous diminution in the quality, quantity or value of an asset.“

According to Spicer and Pegler, "Depreciation may be defined, as a measure of the exhaustion of the effective life of arm asset from any cause during a given period."

These definitions refer to certain basic aspects like permanent and continuous diminution, exhaustion of effective life but they are not comprehensive.

According to ICMA (Institute of Cost and Management Accounts, London) terminology, "Depreciation is the diminution in intrinsic value of the asset due to use and/or lapse of time. "

According to Walter B. Meigs and others, "The concept of depreciation is closely linked to the concept of business income. Since part of the service potential of the depreciable asset is exhausted in the revenue getting process each period, the cost of these services must be deducted from revenue in measuring periodic income; the expired cost must be recovered before a business is considered as well off as at the beginning of the period. Depreciation is a measure of this cost."

According to the Institute of Chartered Accountants in Austria, "Depreciation represents that part of the cost of a fixed asset to its owner which is not recoverable when the asset is finally put out of use by him. Provision against this loss of capital is an integral cost of conducting the business during the effective commercial life of the assets and is not dependent upon the amount of profit cleared."

From the above definitions it is clear that depreciation refers to that part of the cost of fixed asset which has expired on account of its usage and or the passage of time. It is thus the 'lost usefulness', 'expired utility', or 'reduction in the intrinsic value' of a fixed asset.

Depreciation is charged on almost all fixed assets, possible exceptions being land, antiques, etc. Usually the value of land and antiques appreciates over a period of time, because they do not have finite economic life as in the case of machinery or furniture.