Property, Plant & Equipment: Q3

Q3: What do you think depreciation is?


Depreciation is the word we give to the process of allocating the cost (or value) of an item of Property, plant and equipment to the benefit it provides to a firm in generating revenue each year:

“Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life.”

AASB 116 para 6

And depreciable amount is defined as:

“Depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value.”

AASB 116 para 6

A key thing to remember is that depreciation is the process of turning an asset (item of Property, plant and equipment) into an expense each year.

Study Guide Chap 5 page 5-7.