Definition of Depreciation

A tax deduction taken for the reduction of value in a capital asset amortized over the useful life of the asset.

Applying "Depreciation" to Securities Exams:

Assets are depreciated during their useful life. When a business purchases a machine for $100,000 for cash the business will reduce the amount of cash it has on its balance sheet by $100,000 and increase the amount of equipment on its balance sheet by $100,000. If the machine has a usefull life of 10 years it will take a depreciation expense of $10,000 per year against its income for 10 years.

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