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What does capital depreciation mean?

Capital depreciation refers to the decline in value of a capital asset. To give a simplified example, if a machine is bought for $10,000 but only has a useful lifespan of five years, then every year, the value of this machine will decline by $2,000. After three years, the machine is worth $4,000. There has been capital depreciation of $6,000.

What does depreciation mean?

In national accounts of gross domestic product, depreciation is referred to as ‘consumption of physical capital’ It is the difference between gross investment and net investment. Related Capital depreciation refers to the decline in value of a capital asset.

What is depreciation expense?

Depreciation expense is just our way of accounting for that reality over time, balancing the fact that it costs cash to purchase an asset today and to replace it in the future, but we can only expense these purchases with the asset's use over time. Knowing how to properly value an asset is a key part of investing.

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