depreciation definition

depreciation

Accounting: Gradual conversion of the cost of a tangible capital asset or fixed asset (excluding land because it has unlimited life) into an operational expense (called depreciation expense) over the asset's estimated useful life. The objectives of computing depreciation are to (1) reflect reduction in the book value of the asset due to obsolescence (functional depreciation) and wear and tear (physical depreciation), (2) spread a large expenditure (purchase price of the asset) proportionately over a fixed period to match revenue received from it, and (3) reduce the taxable income by charging the amount of depreciation against the firm's total income. In effect, charging of depreciation means the recovery of invested capital, by gradual sale of the asset over the years during which output or services are received from it. Depreciation is computed at the end of an accounting period (usually a year) and the method best-fitting the usage profile of the asset is chosen (except where some other method is dictated by the tax laws). When applied to intangible assets, the preferred term is amortization.

Economics: Diminishment in the economic potential of an asset over its productive or useful life.

Forex: Reduction in the exchange value of a currency, either by a government or due to weakening of the underlying economy in a floating exchange rate system.

depreciation is in the Accounting & Auditing, Banking, Commerce & Finance, Currency Trading and Economics, Politics, & Society subjects.

depreciation appears in the definitions of the following terms: depreciation rate, adjusted basis value, market value policy, intellectual capital, salvage value, depreciation to sales ratio, operating expenses, wasting asset, return of capital, capitalized cost and

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