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I am an IT Director trying to depreciate software. I believe the key concept is "useful economic life".

I am worried by the the phrase "roughly corresponding to normal wear and tear."'

This might not be true. If a capital asset is properly maintained and the business takes an "expense" for maintenance there will be no "wear and tear" however there will still be depreciation arising from obsolescence. In many situations this will be the actual driver of the depreciation. —Preceding unsigned comment added by (talk) 15:30, 22 February 2010 (UTC)

Amortization and depreciation[edit]

What's the difference between amortization and depreciation? I can't recall seeing an income statement with those two expenses separated. This link say that "Depreciation and Amortization are very closely related concepts", what does the FASB and other say about this?--Jerryseinfeld 13:56, 13 Apr 2005 (UTC)

Depreciation and amoritization are related, but are not exactly the same thing. Keep in mind that an asset is something that gives an organization future economic benefits. Depreciation is a way of showing that some of those benefits are being used up over time. An easy example would be a cash register. It may cost us $2,000 to buy the register, but that is because we consider that $2,000 register to provide us benefits. As time passes, we will depreciate the cash register, so we have a depreciation expense showing we used up some of that economic benefit.
, it will be amoritized over the shortest of its economic or legal life. If I spend money having to defend my trademark in court, that extra expense would be capitalized and would be amoritized over the remaining life of the trademark.
Hope that makes some sense... --Zoop 17:27, 12 August 2005 (UTC)

Amortization is the depreciation of intangibles i.e. goodwill. --lincs_geezer 23:57, 2 November 2006 (UTC)

Depreciation Methods[edit]

What factors should you consider when choosing a method?

From a tax perspective, generally most businesses prefer to apply the 'diminishing value' method as it provides greater immediate tax deduction in the early years.
From an accounting basis, depreciation is valuing the asset across its useful life, its seen to be best to pick the method which most closely reflects the change in useful life of an asset.
A 'Water tank' for example which lets say has a useful life of 30 years, can generally be argued to mostly be just as useful in each year you have it so a straight line depreciation is likely more representative.
Alternativley it can be argued that a 'Laptop computer' is really worth alot more in the early years, and really diminishes in value each year, hence let assume a laptop had a useful life of say 4 years (and yes, this is about how long the laptop still works not how long it is before its seen to be slow), then rather than claim an equal portion each year the diminishing value method applies to expense a larger figure initially with a gradually decreasing value every year.
Hope that explains it for you. --Evolve2k 12:12, 10 February 2006 (UTC)

Merge from Depreciação[edit]

The translated article Depreciação is about the same subject. If there's anything on that article that can be used to improve this one, please merge it here. - Bobet 13:58, 4 January 2006 (UTC)

I don't think so.. it's machine-translated so it's almost unreadable. I nominated it for deletion. Rhobite 14:13, 4 January 2006 (UTC)

Other Methods[edit]

I will expand these, this is just a place to work -- Dbroadwell 16:39, 29 April 2006 (UTC)

  • Units of production
  • Units of operating time

I'm not sure I like Depreciation on the basis of 'operating time' since that seems to allow a company to not charge any depreciation in a year if the asset has not been used. Are there really companies out there that use this method or is it just an academic theory? Anthony 17:36, 2 November 2007 (UTC)

Whether it's actually used or not I don't know, but this would be an appropriate method for something like an airplane engine which has a maximum operating time between overhauls. Dsliesse (talk) 18:18, 22 March 2014 (UTC)dsliesse

difference between devaluation and depreciation[edit]

hello in Argentine Currency Board entry in wikipedia it is said that "In 1989, former President Raúl Alfonsín resigned, and in July of that year Carlos Menem was elected President. His early attempts to stabilize inflation failed, resulting in further devaluation of the peso and a serious reduction in the central bank's reserves." there has occurred a problem when i corrected this statement replacing devaluation with depreciation i was called a vandal :( IMHO devaluation is when the exchange rate is changed (lowered) by central Bank when the exchange rate is set by this institution, while depreciation is a term used when exchange rate changes (lowers) in floating exchange rate if someone wants to clear this out pls post your answer here or here:

De listed GA[edit]

This article did not go through the current GA nomination process. Looking at the article as is, it fails on criteria 2 of the GA quality standards. No references are cited. Please make necessary corrections, reexamine the article against the GA quality standards, and submit the article through the nomination process. RelHistBuff 15:03, 14 August 2006 (UTC)

Depreciation is a good article; it should be added to the list of quality articles.
Citing of references is a very complicated topic. I've consulted a number of accounting textbooks, taking a bit from here and a bit from there. You can not cite every sentence. The whole subject of depreciation is a well known area of accounting.

You can not twist the truth here. You can only say the same thing with different words, and you can explain it better than in some textbooks. For that reason, citing what is common knowledge is very difficult. It's like citing that two times two is four. --Michael Vilkin, aka mikevilkin —Preceding unsigned comment added by (talk) 04:11, 23 July 2008 (UTC)

Wear and tear[edit]

I disagree with the statement "Depreciation in accounting is often mistakenly seen as a basis for recognizing "wear and tear"". This is in fact the idea: it is the basis for recognizing wear and tear, and is the representation of it in accounting terms. What is mistaken is the notion that it is identical to wear and tear, or that the carrying value (purchase minus accumulated depreciation) equals the actual value. Is something else meant by this statement?

Actually, the context under which the statement was made makes perfect sense. The original statement referred specifically to software, which doesn't wear out. It will run forever, assuming the required hardware and operating system are still available. But that doesn't mean its useful life is infinite. As an example, consider tax software. This year's tax software obviously is useful, but software from 10 years ago is of very little value. Its actual useful life is subject to debate; it could be 1 year, 3 years (based on certain rules for filing taxes), 4 years (based on the timing of those same rules), or 10 or 11 years (pretty much the outer limit for tax questions).

In point of fact most software will be fully expensed in the first year under Section 179 (US tax code -- I can't speak to the rules of other countries), but I'm just trying to illustrate the point.

Dsliesse (talk) 18:16, 22 March 2014 (UTC)dsliesse

More Methods[edit]

1. Annuity method
2. Endowment Policy Method
3. Revaluation Method
Normally used for livestocks.
you may include these in the article.Or if you people permit I may contribute. Ahalmeena 16:21, 5 February 2007 (UTC)

merge with salvage value[edit]

Currently, another article exists to deal with salvage value. It is currently a stub. I personally do not believe that it should have it's own article, as it can easily be explained in a few sentences on this page. Please feel free to share your opinions on the matter. Lordthees 13:37, 4 June 2007 (UTC)

Types of Depreciation[edit]

There should be written something about Expansionary and Contractionary Depreciation.


I was redirected here from "write-down" and was dissatisfied with the portions of this page describing it. Considering the state of the U.S. economy, I wanted better examples of the reasons for (massive loss of revenue) and effects from (burden on taxpayers) taking multi-billion dollar write-downs. Jeff kuta (talk) 14:31, 26 March 2008 (UTC)

Ditto. 'Write-down' has become a very widely used phrase in the global media in the last few months. It's now more widely used in the media than 'depreciation'. I came here looking for a precise definition and an explantion of how a writedown works. This page doesn't give it.

I support having a new page focusing on the meaning of 'write-down' and how they work. RedTomato (talk) 13:17, 18 April 2008 (UTC)

I think you are looking for impairment, which is not described in this article because it is something different... although having said that, the article on impairment is very poor. AnthonyUK (talk) 14:09, 4 May 2008 (UTC)

I am somewhat shocked that in 2011 and several financial crises after my 2008 comment above, there is still no clear explanation of Write-down. Thanks to AnthonyUK for his comment above. There is no specific article on impairment but in an accounting context, Revaluation_of_fixed_assets is given. The Revaluation article seems reasonably comprehensive, so I am going to Be Bold and redirect Write-down to Revaluation_of_fixed_assets instead of to this Depreciation article. 11:02, 13 October 2011 (UTC) — Preceding unsigned comment added by RedTomato (talkcontribs)

Private Home Serve as Office[edit]

Some times you can use part of your home for your business (or it can be your office). In such case costs that incured to modify the house to make suitable for the business purpose and other expenses like lease, mortgage payments and also depreciation for the portion of the house used for the business(that is floor space used for the business) should be deducted as expense from the business income to arvive at the taxable income. This concept is not included in most countries tax law. What is your comment on this point? Tegegne Tibebu Abreham

I suspect that concept is included in tax law...which is why people tend to avoid trying to claim it in those terms. If you say that a room that is 20% of your house is used exclusively for rhe business, then that makes 20% of your house an asset of the business. That can cause a whole host of problems when you try to sell your home.
But that's probably enough talk about this, as it isn't really about the fact it sounds rather a lot like someone's homework... AnthonyUK (talk) 21:41, 13 June 2008 (UTC)

Double Declining Balance Depreciation[edit]

The equation listed is Annual Depreciation = Depreciation Rate * Book Value at Beginning of Year, and it does not explain directly what Depreciation Rate is, or how it is calculated, its only that its double the Straight-line Method. An easier formula is Annual Depreciation Expense= (2/Useful Life in Years) * Beginning Year Book Value, this allows direct calculation of Double Declining Balance.

Free encyclopedic public domain source (CRS report)[edit]

I'm adding Congress's CRS reports to their relevant talk pages, since they're so thorough and you can just copy-and-cite the content ... here's yours:

PS : if you can think of a better talk page for this, please copy it there PPS: could someone please create a "real estate taxation" stub for this.

Agradman talk/contribs 08:24, 1 July 2009 (UTC)

Expansion with citations[edit]

I have simplified the introductory paragraphs. Much of the legacy material is more appropriately covered in the detailed discussion, which I have now done. I have expanded the accounting & tax sections, providing detailed citations & cross references. I have also expanded references and removed a few silly external links (e.g., Jalopy, about a slang term for old cars).

The section on "Recording depreciation" was largely related to bookkeeping details. I have moved small parts to the accounting section and deleted the balance. I made this change as a separate change so it can be reverted if other editors find benefit of retaining it.

Comments & further enhancements welcome. Oldtaxguy (talk) 16:12, 3 August 2009 (UTC)

Proposed split[edit]

Shall we split this article into two: one for accounting/tax depreciation, the other for economics?Happybunny95 (talk) 04:19, 15 November 2010 (UTC)

I'm good either way. Oldtaxguy (talk) 04:30, 15 November 2010 (UTC)

yes yes yes! —Preceding unsigned comment added by (talk) 17:15, 29 December 2010 (UTC)

I completely agree. AnthonyUK (talk) 17:39, 2 January 2011 (UTC)

added category Taxation Oldtaxguy (talk) 00:19, 24 April 2011 (UTC)
Split made. I recomend an expert in the field check the references, see alsos and categoriesOp47 (talk) 17:40, 30 December 2011 (UTC)

Redirection for 'Write-downs' moved.[edit]

Write-downs formerly pointed to this page, which addresses a rather different concept. I have now redirected Write-downs to Revaluation_of_fixed_assets, which while not perfect is a better match. One problem is there is no mention of 'Write-downs' on that page. My accounting knowledge is too weak to attempt writing a new section. If you know something about write-downs, please do add a section to that page.

Many thanks Tomato Tomato (talk) 11:13, 13 October 2011 (UTC)