depreciation

(noun)

The measurement of the decline in value of assets. Not to be confused with impairment, which is the measurement of the unplanned, extraordinary decline in value of assets.

Related Terms

Examples of depreciation in the following topics:

  • Cost

    • Depreciation is an example.
    • Capital is used in the production process and it is "used" up, i.e. its value depreciates.

  • Exchange Rate Policy Choices

    • If there is an unexpected depreciation in the local currency's value, businesses and banks will find it much more difficult to settle their debts.
    • This is because sudden depreciation in their currency value poses a significant threat to the stability of their economies.

  • How Taxes Work in the United States

    • For example, Congress may say that depreciation will be an allowable expense "in accordance with regulations to be established by the IRS. " This allows the IRS to articulate the conditions under which depreciation is considered an allowable expense.

  • Exchange Rate Systems

    • Crawling pegs:A crawling peg is an exchange rate regime, usually seen as a part of fixed exchange rate regimes, that allows gradual depreciation or appreciation in an exchange rate.
    • In dealing with external pressure to appreciate or depreciate the exchange rate (such as interest rate differentials or changes in foreign exchange reserves), the system can meet frequent but moderate exchange rate changes to ensure that the economic dislocation is minimized.

  • Bernanke Era

  • The Importance of Aggregate Decisions about Consumption versus Saving and Investment

    • The wealth effect is specifically related to the value of assets; market participants will adjust consumption in-line with their perception of the appreciation or depreciation of held assets (a home; equity investments, etc.).

  • Managed Float

    • If a currency floats, there could be rapid appreciation or depreciation of value.

  • Defining Capital

    • Capital goods are used in the production process and may depreciated through accounting practice to incorporate utilization, though they are not consumed.

  • Defining GDP

    • Depreciation (or Capital Consumption Allowance) is added to get from net domestic product to gross domestic product.

  • Calculating GDP

    • GDP = National Income (NY) + Indirect Business Taxes (IBT) + Capital Consumption Allowance and Depreciation (CCA) + Net Factor Payments to the rest of the world (NFP)