Depreciation, the gradual transfer of the value of the means of labour, as they wear out, to the manufactured product and the use of this value to gradually reproduce fixed production assets. In the process of production, the means of labour become physically worn (see Physical Wear and Tear of the Means of Labour) and gradually lose their use Value. At the same time, their value is being transferred to the manufactured product, and is becoming correspondingly lower. The value of the means of labour is also reduced as a result of their obsolescence (see Obsolescence of the Means of Labour) caused, on the one hand, by their becoming cheaper as a result of higher labour productivity in manufacturing similar machinery and equipment, and, on the other—by the development and use of technically more advanced means of labour. Cost accounting envisages that the means spent by the socialist enterprises to reproduce fixed assets are compensated using the proceeds from the sales of the manufactured produce. This is achieved by setting up a depreciation fund, the chief source for financing capital investment. In accordance with the established state norms, each enterprise is required to have a certain depreciation fund, which is divided into two parts. The first goes into partial reconstruction (major repairs and modernisation) of fixed assets. Ninety per cent of these means remain at the disposal of the enterprise. The other part is used for the renovation of fixed assets. In part 83 (30-45 per cent), it remains in the enterprise, the rest going to finance centralised capital construction. Depreciation is a monetary form assumed by the transfer of the value of existing fixed assets to the manufactured product; it is included in the prime cost of product. It is a general law for the share of depreciation allowance in production expenditure to rise, which is determined by the fact that there is an increase in the asset-worker ratio. The size of the annual depreciation allowance depends, first, on the average annual value of fixed assets and, second, on the rate of depreciation. The depreciation rate is understood as the ratio of the annual depreciation allowance to the average annual value of fixed assets in percentages. It shows the period of service during which the value of fixed assets must be renovated. Depreciation rates are established for renovation and for capital repairs individually; they differ depending on the types and groups of fixed assets. Underestimated depreciation rates slow down the renovation of fixed assets, thus indirectly impeding technological progress, while exaggerated rates result in an unjustified growth of prime costs. An economically reasonable rationing of depreciation allowance is a necessary condition for the correct formation of a depreciation fund.