The first thing to do is determine the etymological origin of the term depreciation that concerns us now. In this case, we have to state that it emanates from Latin, exactly from the verb "depretiare". This is made up of the following parts:
• The prefix “de-”, which indicates “deprivation” or “estrangement”.
• The word "pretium", which is synonymous with "price" or "reward."
• The suffix "-are", which is a termination used to form verbs.
The depreciation is a decrease of the value or of 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 class.
For example: "Economists argue that currency depreciation will contribute to improving the country's competitiveness", “I want to sell the car before its depreciation advances”, “The best thing about this type of investment is that depreciation takes a long time to arrive”.
Typically, the depreciation of a product originates from three causes: the wear generated by the use, the obsolescence or the passage of time. A car loses value (that is, it depreciates) as its mileage increases, as use affects the performance and condition of the 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 sale price when it is very old.
For the economy and the finance , depreciation can be associated with devaluation , which is the decrease in the nominal value of a currency in front of a foreign currency. This can occur for various reasons that summarize an increase in demand for foreign currency and a decrease in demand for local currency.
Also do 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 that asset, the recovery value and also the method to be applied to carry out the aforementioned operation.
When we are referring to assets, they are real estate such as buildings of various kinds, vehicles, computer equipment, machinery ...
In addition to all of the above, we should state that there are various depreciation methods that are used within what is 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.
• Method of adding the digits of the years. To depreciate an asset, what it takes into account is based on the units used.
• Method of the 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 had to use Two pesos in a country X . Six months later, in that same nation, the purchase of a dollar required an investment of three pesos . The local currency (the peso), therefore, suffered a depreciation in those six months.