What is depreciation?

Appreciation: when the value of something increases.

Depreciation: when the value of something decreases.

Example: A brand new car, when driven for the first time on the road, is worth less money than it was before. It has, thus, depreciated in value. 

The appreciation or depreciation rate describes the rate at which something gains or loses value. This is usually displayed as a percentage change, often annually (an annual rate means it will be applied at the end of each year).

Mathematical Example: 

At the end of 2018, James bought a television for £5000. Its value depreciated each year by 20% for the next 3 years. How much is it worth at the end of 2021?

Because the television depreciates by 20% every year, our multiplier is:

 1 – 0.20 = 0.80

To calculate how much the television is worth after 3 yearly depreciations, we must multiply the original value of the television, £5000, by the value of our multiplier, 3 times:

(0.80)³ x £5000 = £2560

To check our answer is correct, we can see that:

Year 1: £5000 – 20% = £4000               

  [where 20% of 5000 is 1000]

Year 2: £4000 – 20% = £3200               

  [where 20% of 4000 is 800]

Year 3: £3200 – 20% = £2560

[where 20% of 3200 is 640]

Depreciation is the measurement of an items loss of value over time.

Depreciation is an Accounting, Business and Maths term for when an asset loses value due to wear and tear over time.

For example: A Car was purchased for 10, 000 pounds but has a depreciation rate of 30 percent each year.

Multiplier is 0.70

New Value after one year is 10, 000 x 0.70 = 7000 pounds is the new value after 30 per cent depreciation

a decrease in the value of a currency relative to other currencies



Depreciation: when the value of something decreases.

AND

Appreciation: when the value of something increases.