Depreciation

Depreciation is the apportionment of cost of a capital item over an agreed period, (based on life expectancy or obsolescence). For example, a piece of equipment costing $100,000 having a life of five years might be depreciated over five years at a cost of $20,000 per year. In which case the P&L would show a depreciation cost of $20,000 per year; the balance sheet would show an asset value of $8,000 at the end of year one, reducing by $20,000 per year; and the cashflow statement would show all $100,000 being used to pay for it in year one.

Updated On: 09.10.04