Depreciation is described as a permanent, continuing and gradual shrinkage in the book value of fixed assets. It is based on the cost of assets consumed in a business rather than its market value. Depreciation is that part of the cost of a fixed asset which has expired on account of its usage and/or the lapse of time, making it an expired cost or expense charged against revenue.

According to Accounting Standard-6, depreciation is a measure of the wearing out, consumption or other loss of value of a depreciable asset arising from use, effluxion of time, or obsolescence through technology and market-change. It is allocated to charge a fair proportion of the depreciable amount in each accounting period during the asset's expected useful life.