Depreciated value

In financial accounting, assets are depreciated or amortized. This depreciation (property, plant and equipment) or amortization (intangible assets) recognizes the value lost through the asset's use, technical obsolescence, passage of time, etc. For example, a manufacturing machine generally loses value because use causes its physical deterioration. In contrast, a patent losses value because it is granted for a set period of time which eventually expires. Depreciation/amortization is generally recognized as an expense because the underlying asset allows a company to engage in its operations.

IFRS defines depreciation and amortization as: (IAS 16 definitions) Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life and (IAS 38 definitions) Amortisation is the systematic allocation of the depreciable amount of an intangible asset over its useful life.

When deprecation/amortization is recognized, a debit is made to depreciation expense in the income (profit and loss) statement while a credit is made to accumulated depreciation/amortization on the balance sheet. In the financial statements, accumulated depreciation/amortization are (as they are asset accounts with credit balances) shown with negative values.

References

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