Depreciation

Depreciation is the systematic distribution of the acquisition or production cost of an asset over its useful life. Instead of charging the entire investment to the year of purchase, the consumption of value is recognized as an expense in the periods to which it relates.

An example using the straight-line method: a storage system costing €600,000 with a useful life of three years is depreciated at €200,000 per year. In IT cost models, depreciation flows into service costs as a periodic charge and prevents cost peaks in the year of acquisition; like other costs, it is distributed to services and recipients via keys. Whether an expense is depreciated at all depends on its classification, see CapEx and OpEx.

Methods and useful lives are governed by accounting standards such as IFRS or national GAAP (e.g. HGB in Germany). Depreciation must be distinguished from the consumption-based distribution of cloud prepayments in the management view, which is described in the entry Amortized Costs.