Definition Of


Depreciation is the process of allocating to expense the cost of a plant asset over its useful (service) life in a rational and systematic manner. It is a process of cost allocation, not a process of asset valuation.

Depreciation applies to three classes of plant assets: land improvements, buildings, and equipment. Each asset in these classes is considered to be a depreciable asset, because the usefulness to the company and revenue-producing ability of each asset will decline over the asset’s useful life.

Depreciation is an annual deduction of a part of the cost of an asset.  In general, it means a decline in market value.

Depreciation this represents the loss of value from an existing stock of real capital (for an individual company or for the whole economy), reflecting the normal wear-and-tear of machinery, equipment, and infrastructure. A company or country must invest continuously just to offset depreciation, or else its capital stock will gradually run down.

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