Question

What is depreciation? What is accumulated depreciation? What companies have lots of depreciable assets? What large companies have few depreciable assets?

Answer 1

Depreciation : The monetary value of an asset decreases over time due to use, wear and tear or obsolescence. This decrease is measured as depreciation.

Depreciation, i.e. a decrease in an asset's value, may be caused by a number of other factors as well such as unfavorable market conditions, etc. Machinery, equipment, currency are some examples of assets that are likely to depreciate over a specific period of time. Opposite of depreciation is appreciation which is increase in the value of an asset over a period of time.

Accounting estimates the decrease in value using the information regarding the useful life of the asset. This is useful for estimation of property value for taxation purposes like property tax etc. For such assets like real estate, market and economic conditions are likely to be crucial such as in cases of economic downturn.

Accumulated depreciation :

Accumulated depreciation is the total amount an asset has been depreciated up until a single point. Each period, the depreciation expense recorded in that period is added to the beginning accumulated depreciation balance. An asset's carrying value on the balance sheet is the difference between its historical cost and accumulated depreciation. At the end of an asset's useful life, its carrying value on the balance sheet will match its salvage value.

Usually manufacturing companies, for which production of goods are highly dependable on more machines or other fixed assets, shall have high amount of Depreciable assets.

Service based companies such as consultancy services, professional services have few depreciable assets.