Depreciation
Things lose value with use and age. The loss is a percentage of the value at that time.
A TV after one year
A TV is bought for ₹21,000. After 1 year its value goes down by 5%.
What is the TV worth after 1 year?
What this lesson covers
The idea
Depreciation is the reduction in the value of an item due to its use and age.
A TV after one year
A TV is bought for ₹21,000. After 1 year its value goes down by 5%.
What is the TV worth after 1 year?
- ₹19,950
- ₹1,050
- ₹20,995
Watch the value fall
Each bar is the TV's value. The red end is what it lost in that year. Choose how many years and the rate of depreciation. Find the values in the goal.
Depreciation: value lost to use and age
Depreciation is the reduction in the value of an item due to its use and age.
TV bought at ₹21,000, depreciating by 5% in a year: The reduction is 5% of 21,000 0.05 × 21,000 = ₹1,050 The value is 21,000 − 1,050 = ₹19,950.
In one step: after losing 5%, the TV keeps 95% of its value. 0.95 × 21,000 = ₹19,950
How much an item loses depends on how many years have passed, how much it has been used, whether it has been damaged and whether parts have been replaced. A bike bought for ₹1,00,000 will be worth less when it is sold after a few years.
Notes
Depreciation is the reduction in the value of an item due to its use and age.
Check yourself
A scooter bought for ₹40,000 depreciates by 10% in a year. What is its value after 1 year (in ₹)?
Answer: 36000
The value is 90% of the price. 90/100 × 40,000 = ₹36,000 Or: 40,000 − 4,000 = ₹36,000
A fridge bought for ₹15,000 depreciates by 8% in a year. How much is the reduction in its value (in ₹)?
Answer: 1200
The reduction is 8% of 15,000. 8/100 × 15,000 = ₹1,200
A car's value falls as the years pass and it is driven more. What is this reduction in value called?
A laptop bought for ₹50,000 depreciates by 10% every year. What is its value after 2 years (in ₹)?
Answer: 40500
50,000 × 0.9 = 45,000 45,000 × 0.9 = ₹40,500
- Depreciation — correct. Yes! Depreciation is the reduction in the value of an item due to its use and age.
- Compounding. Compounding is when the interest is added back to the principal, so an amount grows. Here the value falls.
- Discount. A discount is a reduction in the price a shop asks. Depreciation is the loss of value from use and age.