Depreciation is the cost of the fixed asset which has been consumed. It is applied over the fixed or permanent nature assets. For example,machinery, vehicle, furniture, computers etc. However, keep in mind that though Land is a fixed and permanent nature fixed asset, it is not depreciated and it usually gains appreciation and not the depreciation.

An entity cannot ignore the recoding of the depreciation expense in every accounting period because assets consume their value with each production and passage of time. If the entity is not recording the depreciation in their accounting records, it is actually misrepresenting the financial statements which results in increased profits and overstated fixed asset's value.

Fixed asset cost

It involves all the cost including the purchase price, import duties, taxes, carriage-in & cost of installing the fixed asset.

Residual value 

It is also called the scrape value or salvage value and it means a value which the asset can get after the expiry of the useful life from sale.

Useful life 

It refers to the number of years an asset can be used in the operations or production of the entity.It can be expressed in number of hours as well. But mostly, it is denoted in number of years.