Depreciation on Wasting Assets

In terms of the decision in the case Lee v. Neuchatel Asphalte Co. Ltd. (1889), there does not appear any necessity to provide depreciation on wasting assets like mines, quarries, etc. In the present-day context, however, it is highly doubtful whether the principle propounded in the above case would hold good. Wasting assets exhaust working and necessarily that involves depletion of the capital employed on such assets. It is, therefore, necessary with a view to maintain the capital employed, a charge for such depletion for ascertaining a true and fair view of the accounts. By this process, the cost inherent in depletion would be accounted for and the fair value of the asset would be disclosed in the Balance Sheet. The term depletion stands for depreciation in case of a wasting asset, because here depreciation is really represented the quantum of diminution of the deposits of materials in the wasting asset. The legal position governing depreciation in case of a company is contained in the Companies Act, 1956. However, it is enough to know at this stage that in the opinion of the Company Law Board (Now National Company Law Tribunal), depreciation on wasting assets is a necessary charge for arriving at the true and fair picture of the Profit and Loss Account and Balance Sheet.

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