Depreciation

In economy, a depreciation is a loss in value of a good, or more generally of a currency.

In General ledger, a depreciation is the countable observation of a probable depreciation on an element of Actif

In Accounts Department

The concept of depreciation should not be confused with that of Amortissement, which corresponds to the consumption of the awaited economic advantages of a credit, this consumption being irreversible and related on time, wear, obsolescence).

A depreciation should not either be confused with a Provision which represents a probable obligation towards the thirds and which appears in the passive of the assessment. Until 2002, the depreciations were called “provisions for depreciation” what caused confusion. This out-of-date name still remains in certain texts and tax documents.

The depreciation must be definitely specified as for its nature or its object and it must be approximated.

Countable concept of depreciation

For the end of the financial year, it is necessary to compare the gross amount with the current value of each asset. The current value is defined like highest of the value of utility and the clear monetary value of the costs of exit. When the element underwent a depreciation, the current value is lower than the gross amount of origin. The difference is then qualified in latent depreciation.

This depreciation obeys two accounting policies:

  • Principle of prudence : The result of a given exercise must take into account all the risks appeared during the exercise. It cannot in no case to translate latent profits.
  • Principle of the historical costs : The assets must appear at their cost of acquisition.

Various types of depreciations

  • the depreciations registered in subtraction of the stations of Actif of the Bilan are the following ones:

    • depreciations of the fixed assets (it is the case for certain fixed assets such as for example the goodwills or the grounds),
    • depreciations of stocks,
    • depreciations of the titles,
    • depreciations of clients' accounts (if the solvency of certain customers is blamed).

Comments

The observation of a depreciation is subject to rules relating to the calculation of the loss in value and it must respect the accounting policies. However, in particular because of the dubious character of the amount of the depreciation, it is possible - to a certain extent - to use it “to correct” the summaries in order to present them under one day more favorable to the interests of the moment of the company.

Sometimes this is why in the event of abuse, one speaks about creative Comptabilité in connection with the observation of the depreciations.

In economy

In the national accounting of a country

In Macroeconomics, the depreciation of the goods or Factors of production belongs to the loss in value of the stock of Capital. She is then deduced from the Investissement to gross form the investment Net which allows the Accumulation of the capital.

Concerning the foreign exchange rate of a currency

See also: Devaluation

The depreciation of a Monnaie corresponds to a fall of sound Foreign exchange rate with respect to one or several other currencies (generally a basket of the other currencies builds by weighting of the weights of the respective commercial exchanges with the other countries).

A depreciation of the Euro vis-a-vis the Yen corresponds thus to a fall of the value of the euro made out in yen. For example, 1 euro which was worth 115 yens is worth nothing any more but 108 yens.

The depreciation of a currency returns the Exportation S of the countries which use this currency more competitive, i.e. less expensive on the international markets. On the other hand, the price of the Importation S increases.

The fact that a currency is very depreciated (i.e. its foreign exchange rate is weak compared to its fundamental economic) is generally not an economic sign of good health.

For the real sector

The depreciation is a loss in value caused by a Détérioration, an obsolescence (functional Désuétude) or an external cause at the building (economic Désuétude).

The depreciation touches only the improvements (buildings and other installations) and not the ground. This one is indeed always evaluated according to its optimal Usage and any loss in value due to the incongruity of the assembly ground-building is allotted to the building. This one can indeed be demolished, leaving with the ground the optimal value which there can have according to its attraction on the gone while remaining subjected to the regulation of Urbanisme.

To take account of the depreciation in the book, one has recourse to the damping.

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