Meaning of Depreciation

Depreciation – Meaning

The word depreciation has been derived from a Latin word ‘Depretium’. The words ‘De’ means decline and ‘pretium’ means ‘price’. Thus, the word ‘Depretium’ stands for decline in the value or price of an asset. The gradual diminition, loss or shrinkage in the utility value of an asset due to wear and tear in use, effluxion of time or obsolescence is called as Depreciation.

Depreciation accounting is a system which aims at distributing the cost or basic value of tangible capital assets less salvage over the estimated useful life of the asset in a systematic and rational manner.

Only assets like building, plant, machinery, furniture etc. are subject to depreciation. It refers to the gradual diminition or loss in the utility value of an asset on account of wear and tear in use, efflux of time or obsolescence.