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Meaning of Depreciation

Jacky Chan and Raymond Poon are university students in Hong Kong. During an Accounting lecture, the lecturer asked them about the meaning of depreciation.

Jacky Chan said that depreciation is what happens when an asset wears out. However, Raymond Poon said that depreciation is the process of building up a cash fund to replace an asset at the end of its useful life.

Define the term 'depreciation' and discuss the two above views.

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Hi,

Interesting definitions and question! I am wondering how much you know about depreciation. Let's take a closer look at several definitions and then apply them to the two definitions provided.

Scenario:

Jacky Chan and Raymond Poon are university students in Hong Kong. During an Accounting lecture, the lecturer asked them about the meaning of depreciation.

Jacky Chan said that depreciation is what happens when an asset wears out. However, Raymond Poon said that depreciation is the process of building up a cash fund to ...

Solution Summary

This solution defines the term 'depreciation' and then discusses the following two views: Jacky Chan argues that depreciation is what happens when an asset wears out, whereas Raymond Poon reports that depreciation is the process of building up a cash fund to replace an asset at the end of its useful life.

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