- spreading out of the original cost over the estimated life of the fixed assets such as plant and equipment. Depreciation reduces taxable income. Among the most commonly used depreciation methods are straight-line depreciationand accelerated depreciationsuch as the sum-of-the-years'-digits (SYD) methodand double declining balance method.
- decline in economic potential of limited life assets originating from wear and tear, natural deterioration through interaction of the elements,and technical obsolescence. To some extent, maintenance (lubrication, adjustments, parts replacement, and cleaning) may partially arrest or offset wear and deterioration.
- Accounting. The amortization of fixed assets, such as furniture and fixtures, allocating the purchase cost of the asset over its useful economic life. accelerated depreciation allows faster write-off than would ordinarily occur under straight-line depreciation.
- Foreign Exchange. A decline in price of one currency relative to another without market intervention by central banks. Contrast with appreciation.
Accounting: deduction allowed a taxpayer, representing a reasonable allowance for the exhaustion of property used in a trade or business, or property held for the production of income. The purpose of charging depreciation against equipment is to distinguish the portion of income that is a return of capital. This generates a tax-free stream of income equal to the portion of the asset that has been "used up."
Economics: loss in the value of an asset, whether due to physical changes, obsolescence, or factors outside the asset.
Economics: consumption of capital during production-in other words, wearing out of plant and capital goods, such as machines and equipment.
Finance: amortization of fixed assets, such as plant and equipment, so as to allocate the cost over their depreciable life. Depreciation reduces taxable income but does not reduce cash.
Among the most commonly used methods are straight-line depreciation; accelerated depreciation; the Accelerated Cost Recovery System, and the Modified Accelerated Cost Recovery System. Others include the annuity, appraisal, compound interest, production, replacement, retirement, and sinking fund methods. See also job creation and worker assistance act of 2002; recapture.
Foreign exchange: decline in the price of one currency relative to another.
actual or accounting recognition of the decrease in the value of a hard asset (property) over a period of time, according to a predetermined schedule such as straight line depreciation.
