Depreciation

1. Describes any method of attributing the historical cost of an asset systematically across time periods when the asset is employed to generate revenues over the life of that asset. The method appears to be of most use when dealing with assets of a short, fixed service life. It may also be described as an expense recorded to reduce the value of a long-term tangible asset which may offset reported earnings and thereby increasing free cash flow.

2. Depreciation occurs when the value of an asset is worth less than the replacement cost. It is the accumulated reduction effect on the value of an asset due to physical, functional, technological and economic obsolescence. A heuristic approach to straight line regression observes a residential property will depreciate at 1.0% to 1.6% per annum, a commercial or retail property will depreciate at 1.25% to 1.6% per annum and an industrial property will depreciate at 2.0 to 2.5% per annum. ‘