Depreciation
Also called: depreciation expense
The cost of a long-lived physical asset, such as a machine or building, spread over the years it is expected to be used.
Depreciation matches an asset's cost to the years that benefit from it. The straight-line method charges the same amount each year: (cost − expected residual value) ÷ useful life. The written-down value method charges a fixed percentage of the remaining book value.
Depreciation uses no cash in the year it is charged, but it is a real cost, because worn-out assets must be replaced.
Example
A ₹50 lakh machine with a 10-year life and a ₹5 lakh residual value is depreciated by ₹4.5 lakh a year.
Learn more in these lessons
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