Depreciation

What it means

The systematic allocation of a tangible asset’s cost over its useful life.

The exam angle

Accelerated methods shift expense forward, lowering early income and raising later income. Useful life and salvage value are management estimates and are a standard quality-of-earnings lever.

Where it appears in the syllabus

• Financial Statement AnalysisCFA Level I · exam weight 11–14% · The three statements, inventories, long-lived assets, quality of earnings.

Related terms

• Accrual accountingRecognising revenue when it is earned and expenses when they are incurred, regardless of when cash moves.
• Balance sheetA statement of what a company owns and owes at a single point in time.
• Book valueThe accounting value of equity: assets less liabilities as reported.
• Cash conversion cycleThe time between paying for inventory and collecting cash from the customer.
• Cash flow from operationsCash generated by the core business, before investment and financing.
• Current ratioCurrent assets divided by current liabilities, a rough test of short-term solvency.