depreciation

Definitions (4)
Related Terms
1. Accounting: The gradual conversion of the cost of a tangible capital asset or fixed asset 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 or wear and tear, (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 company'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), using a method best suited to the particular asset. When applied to intangible assets, the preferred term is amortization.

2. Commerce: The decline in the market value of an asset.
3. Economics: The decrease in the economic potential of an asset over its productive or useful life.
4. Foreign exchange: The 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.

Use 'depreciation' in a Sentence

What Bill did not realize was that once he had driven his expensive new Mercedes off the car dealership's lot, the initial depreciation would be at least twenty percent of the sales price of the car.
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After the housing crisis of 2008, so many homes were foreclosed upon and left vacant that a serious depreciation of the value of the individual houses occured.
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A new vehicle for personal use or business is rewarding and enjoyable but the depreciation in value that results once driven off the car lot is frustrating.
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