What is depreciation? What factors influence depreciation?
Depreciation is the loss in value of a tangible asset over time due to wear and tear, obsolescence, or other factors. It is generally calculated as the difference between the asset's original cost and its estimated salvage value at the end of its useful life, and is recognized as an expense on a company's income statement.
Several factors can influence depreciation, including:
1. Asset type: Different types of assets have different useful lives and depreciation methods. For example, a computer may have a useful life of three years, while a building may have a useful life of 30 years.
2. Age: As an asset ages, it may become less efficient or effective, resulting in a decline in its value.
3. Maintenance: Proper and timely maintenance of an asset can prolong its useful life and reduce depreciation.
4. Market value: Changes in the market value of an asset can affect depreciation.
5. Obsolescence: Technological advances and changing consumer preferences can make an asset obsolete, resulting in a faster depreciation rate.
6. Environmental factors: Moisture, temperature, and other environmental factors can affect the condition of an asset and its useful life.