Definitions [1]
Definition : Depreciation
Depreciation means a gradual decrease in the value of fixed assets like buildings, machinery, furniture, and equipment due to their use, passage of time, or technological changes.
Key Points
Difference Between Provision and Reserve
| Basis | Provision | Reserve |
|---|---|---|
| Nature | Liability or asset reduction | Shareholders' money |
| Purpose | For specific loss/expense | For specific or general use |
| Charge vs. Appropriation | Charged to profit | Appropriated from profit |
| Disclosure in Financial Statement | Shown as an expense in P&L | Shown under Shareholders' Funds |
| Disclosure in Balance Sheet | Under Provisions or asset deduction | Under 'Reserves & Surplus' |
| Investment Outside Business | Not allowed | Allowed (as fund) |
| Legal Requirement | Legally required | Based on prudence |
| Necessity | Mandatory even without profit | Created only if profits exist |
| Utilisation for Dividends | Not allowed | Allowed |
| Utilisation for Other Purposes | Only for the loss provided | Can be used for any purpose |
