What Is the Meaning of Depreciate?
Depreciation is when the value, price or market value of something is reduced. Whenever something depreciates, it is not worth as much as it used to be. There are a lot of things that can cause depreciation, but it all depends on what is being depreciated. Whenever there is depreciation, always take a look at the item and all of the surrounding factors that can contribute to depreciation to get a full understanding.
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Stock Price
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If a company incurs unusually high expenses, and the amount of sales is substantially reduced, the profits of that company will more than likely fall. When there is a situation such as this, the price of the company's stock will depreciate and the stockholders may not realize a significant return on their investment.
Home Value
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When the economy is in a recession, the values of homes may depreciate. Based on the law of supply and demand, the home prices will fall. When the demand for any type of commodity or good decreases, the value or price of that commodity will depreciate or decline. Homeowners will lose a significant amount of equity when this happens. Equity is the difference between the market value of the home and the balance owed. If foreclosures are at record levels, then the demand for housing will depreciate, and the values of homes, in turn, will depreciate.
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Depreciation Methods
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Organizations use various depreciation methods to spread the value of an asset over several years. Each year, due to wear and tear and use, an asset such as equipment or a building is depreciated over a certain amount of years, until finally the value is nearly zero. The depreciation expense must be reflected appropriately in the company's financial statements. Some of the methods used for calculating depreciation expenses are the straight-line, sum of the years and the double declining balance.
Automobile Depreciation
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As a rule of thumb, when you drive a brand new automobile off the dealership lot, it depreciates in value approximately $3,000. This is the nature of the auto industry, even though there has been no wear and tear on the automobile: this is why automobiles are not good investments. On the other hand, more expensive cars such as Mercedes Benz, Rolls Royce, Jaguar or Ferrari don't depreciate in value as much as your typical automobile.
Time-shares
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Time-shares have been noted to depreciate substantially as soon as you purchase them. The amount of depreciation is somewhere around 30 to 70 percent. There are situations where a time-share can actually appreciate in value, but only if the property is located at one of the really expensive resorts.
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