Depreciation

What is Depreciation?

Depreciation is the term used to describe the decrease in value of property (for example, your house) or some other asset (for example, your car).

Causes of depreciation are varied and can include a number of factors such as: natural wear and tear, obsolescence of the product or even simply the appetite of the market. Most assets, say, a car or a house, will never have the same value throughout its lifetime.


Q: What is the difference between depreciation and amortisation?

A: Depreciation deals solely in tangible assets, such as a car or house, whereas amortisation looks at the cost over something intangible that’s bringing in money (such as a patent which expires after a set period ).

Q: How is it measured?

A: The way depreciation is calculated is not hugely scientific: it is effectively the value of an asset at its current market value compared to when it was purchased new. For example if you bought a car new for £15,000 and when you come to sell it in a few years’ time it is only worth £8,000, it has depreciated by £7,000.

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