Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. AS-6 (Depreciation) defines depreciable amount as cost of asset less its residual/salvage value. Depreciation recognizes that fixed assets lose value over time due to use, passage of time, obsolescence, or technological change. Depreciation is not a valuation process but an allocation of cost to periods. Key concepts: Cost is purchase price plus all direct costs to bring asset to working condition; Useful life is the period over which an asset provides economic benefits; Residual value is the estimated amount receivable from disposal at end of useful life. Factors affecting depreciation: nature of asset, expected usage, environmental conditions, maintenance level, technological changes. Depreciation does not provide cash for asset replacement; it only reduces taxable profit. Different depreciation methods allocate cost differently over useful life but total depreciation over life is same. Depreciation calculation begins when asset is available for use, not when purchased. Depreciation calculation ceases when asset is fully depreciated or when held for sale. Partial period depreciation must be calculated when assets are acquired or disposed mid-period. Financial statement presentation requires gross asset value and accumulated depreciation separately. Exam tip: Understand the distinction between depreciation (allocation of cost) and valuation; grasp when depreciation starts and stops; know common methods used in India.