Plant and equipment depreciation is the allocation of an asset’s cost over its useful life. Since these assets wear out or become obsolete over time, depreciation helps businesses account for their declining value. Common depreciation methods include:
- Straight-line depreciation – Assets lose value evenly over time.
- Diminishing value depreciation – Higher depreciation in the early years, reducing over time.
- Units of production depreciation – Based on asset usage rather than time.
Understanding depreciation helps businesses accurately report asset values, optimise tax benefits, and plan for replacements.