Which of the following best describes 'depreciation'?

Depreciation is best described as the allocation of an asset's cost over its useful life. This concept reflects how, as an asset is used over time, it gradually loses value due to factors such as wear and tear, obsolescence, or usage. Rather than recognizing the entire cost of the asset as an expense at the time of purchase, depreciation allows a business to spread this cost over the asset's lifespan, providing a more accurate representation of the asset's contribution to income generation during each accounting period.

This method is important for financial reporting and tax purposes as it impacts net income and the valuation of assets on the balance sheet. By allocating the cost systematically, companies can match the asset's expense with the revenue it generates, giving a clearer picture of profitability.

The other choices do not accurately capture the essence of depreciation. An increase in an asset's value over time (first option) describes appreciation, which is not related to depreciation. The total cost of acquiring an asset (third option) simply refers to the initial amount paid, without addressing the allocation of that cost. The immediate write-off of an asset's cost (fourth option) suggests expensing the entire cost at once, which contradicts the principle of allocating costs over the asset's