Definition of Depreciation

En accounting termsWe call depreciation the reduction or wear and tear of the value of an asset or property due to the passage of time, use or obsolescence. Companies account for these losses in value or wear and tear as an additional cost and thereby differentiate three types of depreciation:

  • Physical depreciation
  • Functional depreciation
  • Obsolescence

Depreciation can also originate as a result of an adjustment in the supply and demand of a country, although this depends on the conditions of financial assets. Thus, if the shares of a company increase, it is possible that there will be an increase in demand, while if the opposite happens, the supply will increase.

Cálculo de la depreciación

In general, to calculate depreciation, the useful time of the good or property is obtained (in years, normally) and the monthly or annual amount in which it is depreciated. The two accumulated depreciation results are then added together. This operation is known as linear and is the most common depreciation calculation method.

Leave a Comment