Its causes are :
A. Internal
(i) Wear and tear : Plant & Machinery. Furniture, Motor Vehicles etc. suffer from loss
of utility due to vibration, chemical reaction, negligent handling, rusting etc.
(ii) Depletion (or exhaustion) : The utility or resources of wasting assets (like mines
etc.) decreases with regular extractions.
B. External or Economic causes
(i) Obsolescence : Innovation of better substitutes, change in market demand, imposition
of legal restrictions may result into discarding an asset.
(ii) Inadequacy : Changes in the scale of production or volume of activities may lead
to discarding an asset.
C. Time element : With the passage of time some intangible fixed assets like lease, patents.
copy-rights etc., lose their value or effectiveness, whether used or not. The word “amortization”
is a better term to speak for the gradual fall in their values.
D. Abnormal occurrences : An Accident, fire or natural calamity can damage the service
potential of an asset partly or fully. As a result the effectiveness of the asset is affected
and reduced.
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