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1 An amount charged to the profit and loss account of an organization to represent the wearing out or diminution in value of an asset. The amount charged is normally based on a percentage of the value of the asset as shown in the books; however, the way in which the percentage is used reflects different views of depreciation. Straight-line depreciation allocates a given percentage of the cost of the asset each year, thus suggesting an even spread of the cost of the asset over its useful life. Reducing- or diminishing-balance depreciation applies a constant percentage reduction first to the cost of the asset and subsequently to the cost as reduced by previous depreciations. In this way reducing amounts are charged periodically to the profit and loss account; by this method the depreciated value of the asset in the balance sheet may approximate more closely to its true value. See also accumulated depreciation.

2 A fall in the value of a currency with a floating exchange rate relative to another. Depreciation can refer both to day-to-day movements and to long-term realignments in value. For currencies with a fixed exchange rate a devaluation or revaluation of currency is required to change the relative value. Compare appreciation.

Subjects: Financial Institutions and Services.

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