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in accountingaccounting,
classification, analysis, and interpretation of the financial, or bookkeeping, records of an enterprise. The professional who supplies such services is known as an accountant. Auditing is an important branch of accounting.
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, reduction in the value of fixed or capital assets, as by use, damage, weathering, or obsolescence. It can be estimated according to a number of methods. In the straight-line method, depreciation is simply seen as a function of time; the cost of the asset, minus its value as scrap, is divided by an estimate of its life. Other methods distribute depreciation over the life of the asset by gradually increasing, or gradually diminishing, installments. The resale value of a machine generally declines most quickly during its early years; thus its depreciation is measured in decreasing installments. The opposite is true of rights of limited duration, such as copyrights and leaseholds, whose value depreciates most quickly as their date of expiration approaches. The technical name for the depreciation of such nonmaterial rights is amortization. The problem of calculating depreciation has special importance because of the need for accuracy in income tax returns. Failure to make allowance for depreciation results in overestimating income. Depreciation of money is brought about by a decline in the price of a particular currency in terms of other currencies, thereby lowering the foreign exchange value of the first currency.


See J. D. Coughlan, Depreciation (1969); R. P. Brief, ed., Depreciation and Capital Maintenance (1984).


The reduction in the value or worth of an asset, such as a building, through physical deterioration over time, and general obsolescence.


(industrial engineering)
Loss of value due to physical deterioration.


Economics a decrease in the exchange value of currency against gold or other currencies brought about by excess supply of that currency under conditions of fluctuating exchange rates
References in periodicals archive ?
Depreciation is an accounting device which recognizes that the physical consumption of a capital asset is a true cost, since the asset is being depleted.
Precluding a Second Opportunity to Receive the Tax Benefit of a Depreciation Deduction that Did Not Produce a Tax Benefit in Prior Tax Years
Another important function of the section 1016(a)(2) basis reduction by all allowable depreciation deductions is to prevent a taxpayer from having a second chance to receive the tax benefit of a depreciation deduction that did not produce a tax benefit in the tax year it was properly deductible.
So if a depreciation deduction would not produce a tax benefit in its properly deductible tax year, the taxpayer does not have the option of skipping the deduction for that year; thus, not reducing the underlying asset's basis.
Further assume that in the first year, the taxpayer is entitled to an allowable depreciation deduction of $20.
Preventing a Taxpayer from Receiving the Tax Benefit of a Nonexistent Loss when Tax Depreciation Exceeds Economic Depreciation
Unlike the harsh punitive tax consequences of the Basis Reduction Tax Trap, if tax depreciation deductions that produce corresponding tax benefits exceed the economic depreciation of the underlying depreciable asset, the section 1016(a)(2) basis reduction precludes the taxpayer from enjoying the unwarranted tax benefit of a deduction for a nonexistent economic loss.
To illustrate this point, consider the following fact pattern: a taxpayer acquires a depreciable asset for $100 and claims in the first year a $20 depreciation deduction that reduces her taxable income by a like amount; in the second year, the taxpayer sells the asset for its original cost of $100.