A type of depreciation that reflects the decline in an asset’s market value as a result of economic factors, such as wear and tear, change in market conditions or government policies, over time. These factors might be internal or asset-specific (wear and tear) or external (or broadly affecting assets in general: market conditions, government policies, obsolescence, etc.)
In contrast with accounting depreciation, economic depreciation is not subject to a set schedule, but rather the influential factors dictate the rate or amount of value drop or loss from time to time.
Depreciation implies a write-down of the value of an asset (a physical asset) over time. In normal situations, economic depreciation implies a decrease in asset values (in this sense, it is better described as positive economic depreciation). In the opposite scenario, negative economic depreciation involves an increase in the cash flows or capital return generated, or expected to be generated, from an asset (such as real estate, acquisitions, internal research and development, etc.)
Comments