Also called: Capital allowance, Decline in value
Depreciation
Depreciation is the deduction claimed for the decline in value of a business asset over time. Where an immediate write-off does not apply, the cost is deducted across the asset's effective life using either the prime cost or diminishing value method.
What is a depreciation?
Depreciation is the deduction claimed for the decline in value of a business asset over time. Where an immediate write-off does not apply, the cost is deducted across the asset's effective life using either the prime cost or diminishing value method.
Example
A $120,000 excavator with a ten-year effective life claimed on prime cost gives a deduction of about $12,000 a year.
Why it matters
Under a chattel mortgage the business claims depreciation and the interest portion; under a lease the treatment differs.