What is the difference between appreciate and depreciate

It is also based on the demand and supply of the currency when compared to International currencies in international market. Both the terms appreciation and depreciation are generally used in the exchange rate. In India RBI plays a major role in depreciating or appreciating the Rupee value and maintaining the exchange rate. Most of the times RBI will not involve in exchange rate maintenance but sometimes RBI involves and manages exchange rate of rupee because when Rupee value is depreciating gradually rupee becomes weaker we have to pay more Indian rupees to purchase dollar.

RBI maintains foreign exchange reserve billion dollars from this reserve RBI releases Dollar into market to balance demand and supply of dollar as shown in below flow chart. We can easily identify that RBI voluntarily appreciates and depreciates the rupee value depending on the forces of the international financial market. There are both advantages and disadvantages for both the consequences when Indian RBI appreciates or depreciates the Rupee value. For further reading about Difference between Stock and Share click here.

Skip to content. What You'll Learn? Spread the Differences. Apprecaition Depreciation The value of the Rupee increases with respect to foreign currency. The value of Rupee depreciates with respect to foreign currency. Based on demand and supply for dollar in market. Based on demand and supply of dollar in the market.

It is done by market forces. Depreciation is caused by the by market forces. The value of Rupee voluntarily appreciated by RBI. Most countries use currency appreciation to increase their financial prospect. Usually, currencies are traded in pairs which makes the value of one currency increase in contrast to the other. It is however important to note that currency appreciation differs from the security value of a currency.

Naturally, a forex trader will trade currency pairs with the expectation of appreciation of the base currency to the counter currency. Here is an illustration to further understand currency appreciation. A basic currency quotation records two currencies as a rate.

The first currency is EUR the base currency and usually represents 1 single unit. The second is the amount of currency that is necessary to equal the base currency. S dollars to get 1 Euro. If the rate of U.

S dollars increases to , then 1 Euro can purchase U. S dollars making the Euro appreciate. Therefore, an increase or decrease of a currency depends on the appreciation or depreciation of the base currency. Since 1 Euro can now get more U. S dollars, we can say that the currency of the Euro has appreciated. Depreciation is a decrease in the value of an asset.

In accounting, depreciation is seen from two perspectives:. Rather than knowing the total cost of the assets, depreciation allows the company to stretch out the cost of the asset to generate income from it.

Depreciation can be treated by allocating the initial cost of an asset to the periods in which the assets are used in the account statement.

This is can also be known as depreciation with the matching principle. Short Life Span : Some assets have a short life span. This means that after a while they become less relevant. The condition applies more to inventories than fixed assets. Depletion : If an asset is used for a while, it begins to wear out gradually and will need replacement. Depletion is more common with production equipment which usually has a recommended life span by the manufacturer.

Other assets like constructions can be fixed up and upgraded so they can last for a longer time. Obsolescence or Ineffectiveness : When a piece of equipment gets old and outdated, it can become obsolete. The result is that it will be replaced by new and effective equipment, thereby reducing the usability of the initial equipment. You can record depreciation by debiting depreciation expenses and crediting accumulated depreciation.

By the end of an accounting period, an accountant books the depreciation for assets that did not depreciate. This entry for depreciation includes a debit depreciation expense which goes through the income statement. Then, a credit accumulated account that indicates an accumulated balance of depreciation is recorded on a balance sheet. An accumulated depreciation account is a contra asset account.

This means that its normal balance is a credit that decreases the net asset value NAV. Here is an illustration below with a table showing the analysis of the residual value of a cargo van:. A residual value carrying value is the total of the assets cost and accumulated depreciation. It is what is left on the balance sheet account after all depreciation has been recorded and until the van is sold or disposed of.

Also at the end of the useful life of an asset, the residual value is what the company would want to receive. Therefore, to record depreciation, the carrying value of an asset is important.

The straight-line method is the easier and more common way to calculate depreciation. This method lets you deduct the same amount of depreciation each year over the useful life of the property.

Here, you depreciate the asset to realize its salvage value. It comes in handy for products that become obsolete rapidly.