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Message from B K Aruna 01.09.2023

Ten points to be remembered about depreciation :

1. The word depreciation is derived from the word “Depreciatum” – a Latin word.

2. Depreciation is the reduction of value of the property due to age, deterioration, lack of maintenance, decay, wear and tear, etc.

3. Depreciation depends upon the age, life of the building and periodical maintenance.

4. Depreciation is applicable to building and not to land.

5. There are four types of depreciation :

i) Physical depreciation
ii) Depreciation due to economic obsolescence
iii) Depreciation due to functional obsolescence
iv) Depreciation due to technological obsolescence

6. The value of the building gets reduced not only by depreciation but also due to obsolescence.

7. Though there are many methods to calculate depreciation, there are two popular methods among the practising valuer :

i) Technical depreciation
ii) Statutory depreciation

8. Statutory depreciation is widely used to calculate the written down value by using the formula :

A = P ( 1 – r/100)^n

Where A = Written down value
P = Historic cost
r = Rate of statutory depreciation as per Income Tax
rule.
n = Age of the building

9. It is to be remembered that the depreciated value of the building as arrived at by using the formula need not represent the market value.

10. When the purpose is to estimate the cost of construction for Income Tax purpose, depreciation is not to be considered.

With best wishes,

B. KANAGA SABAPATHY
bkvaluer@gmail.com
www.bkanagasabapathy.com