Depreciate Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Depreciate, written in plain English, along with examples of how it is used.
What is Depreciate?
v. Accounting practice that reduces the value of an asset on an annual basis under the theory that eventually, the asset will become obsolete or of little value.
History and Meaning of Depreciate
Depreciation is a widely used term in the field of accounting and finance. It refers to the practice of reducing the value of an asset over time, in recognition of the fact that every asset becomes less valuable as it ages. This practice aims to balance the accounting books, and to make sure that the value of assets is properly reflected in a company's financial statements.
Depreciation can take many forms, depending on the asset in question. For example, a piece of equipment might be depreciated over a period of five years, while a building might be depreciated over a period of thirty years. The exact amount and method of depreciation is often prescribed by accounting standards, and may vary depending on the company and the industry in which it operates.
Examples of Depreciate
Suppose a company purchases a delivery truck for $50,000, with a useful life of five years. The company might choose to depreciate the truck over five years, at a rate of $10,000 per year. This means that after the first year, the value of the truck would be recorded on the books as $40,000, and so on until the end of the fifth year, when the value would be reduced to zero.
In real estate, it is common practice to depreciate buildings over a period of thirty years. This means that the value of the building is spread out over three decades, and the owner can deduct a portion of the building's value from their taxes each year.
Depreciation can also refer to a decline in the value of a currency. For example, if the US dollar depreciates relative to the euro, this means that it is worth less in euros than it was before.
Legal Terms Similar to Depreciate
- Amortization: a similar concept to depreciation, but applied to intangible assets like patents and copyrights.
- Impairment: the recognition that the value of an asset has decreased, either because of damage or obsolescence.
- Depletion: the practice of reducing the value of a natural resource over time (for example, oil reserves or timber).