The depreciation of a vehicle occurs due to increased mileage, which deteriorates its components.
Depreciation is a decrease in the value or price of something. This drop can be detected from the comparison with the previous value or price, or in relation to other things of the same kind.
For example: "Economists maintain that the depreciation of the currency will contribute to improving the country's competitiveness" , "I want to sell the car before its depreciation progresses" , "The best thing about this type of investment is that the depreciation takes a long time to occur." arrive" .
Before moving forward, we must determine the etymological origin of the term that concerns us now. In this case, we have to explain that it emanates from Latin, exactly from the verb depretiare . This is made up of the following parts: the prefix -, which indicates "deprivation" or "removal" ; the word pretium , which is synonymous with "price" or "reward" ; and the suffix – are , which is an ending used to form verbs.
Causes of product depreciation
The usual thing is that the depreciation of a product originates from three causes: wear and tear caused by use, obsolescence or the passage of time.
A car loses value (i.e., depreciates) as its mileage increases, as use affects the performance and condition of parts. A computer ( computer ), on the other hand, becomes obsolete when new models begin to emerge that offer more efficient operation. A house, finally, lowers its selling price when it is very old.
The concept in economics and finance
For economics and finance , depreciation can be associated with devaluation , which is the decrease in the nominal value of a currency against a foreign currency.
This can occur for various reasons, including an increase in demand for foreign currency and a decrease in demand for local currency.
The depreciation of a currency implies its devaluation.
Asset depreciation
Likewise, we must not forget that in order to undertake the calculation of the depreciation of an asset, it is essential to have the following parameters: the value to be depreciated, the useful life of the asset, the recovery value and also the method that will be applied to carry out the aforementioned operation.
When we are referring to assets, we are talking about real estate such as buildings of various kinds, vehicles, computer equipment, machinery...
In addition to everything stated above, we would have to explain that there are various depreciation methods that are used within the financial and economic field:
- Straight line method . It is easy to use and is based on the criterion that the asset in question wears out in the same way during an accounting period.
- Sum of the digits of the years method . To depreciate an asset, what you need to take into account is to base it on the units that are used.
- Method of units produced.
- Double declining balance method , which can be said to be a double straight line method.
Let's look at an example: at the beginning of the year, to buy one dollar you had to use two pesos in country X. Six months later, in that same nation, the purchase of one dollar required an investment of three pesos . The local currency (the peso), therefore, suffered a depreciation in those six months.