---
title: "Concept of depreciation"
subject: "Construction Management"
chapter: 13
key: "semester_8/construction_management:depreciation-concept"
source: https://www.bctengineer.com/q/semester_8/construction_management/depreciation-concept
site: BCT Engineering
---

# Concept of depreciation

Construction Management · Chapter 13: Valuation

- Asked in: 2072 Asoj
- Video: [What is Depreciation? | Methods, Importance, Factors #depreciation](https://www.youtube.com/watch?v=gVC33S3TSM4) — Educationleaves
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_8/construction_management/depreciation-concept
- Whole chapter: https://www.bctengineer.com/md/semester_8/construction_management/chapter-13

## Question

Elaborate the concept of depreciation.

## Short answer

Depreciation is the decrease in property value over time due to wear, decay, obsolescence. Land does not depreciate; buildings and machinery do. Methods: straight-line, declining balance, sinking fund, quantity survey. Used to find present building value.

## Answer

**Depreciation** is the decrease in the value of a property or asset with the passage of time, caused by ageing, wear and tear, decay, weathering, obsolescence and similar causes. It is the loss in value from the original cost to the scrap or salvage value at the end of the useful life.

#### Causes
- Physical wear and tear, use and decay.
- Weathering and the action of the environment.
- Obsolescence: old design, change of fashion or technology.
- Accident, fire or earthquake damage.
- Lack of maintenance; legal restriction.

Land does not depreciate (except in special cases such as mines); buildings, machinery and equipment do.

#### Methods of calculating depreciation
1. **Straight line method:** the same amount each year. $D = \dfrac{C - S}{n}$, where C is the cost, S the scrap value and n the life in years.
2. **Constant percentage (declining balance) method:** a fixed percentage on the reduced book value each year; the depreciation is larger in the early years.
3. **Sinking fund method:** a yearly amount is invested at compound interest so that at the end of the life it equals the (C − S): $I = \dfrac{(C-S)\, i}{(1+i)^n - 1}$.
4. **Quantity survey method:** the building is divided into parts and the depreciation of each part is estimated separately by its life.
5. **Depreciation by the age and life ratio (value method).**

Depreciation is used in valuation to find the present value of a building, in accounts, and for deciding replacement.

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. What is depreciation?
   A. Increase in value with time
   B. Decrease in value of a property with time due to ageing, wear and obsolescence
   C. Cost of land
   D. Rent paid
   Answer: B. Depreciation is the loss in value from cost to scrap value over the useful life. (Key point: Definition)

2. Which statement is correct?
   A. Land depreciates fastest
   B. Nothing depreciates
   C. Machines do not depreciate
   D. Land does not depreciate, while buildings and machines do
   Answer: D. Land generally does not depreciate. (Key point: Land)

3. What is the straight line depreciation formula?
   A. D = C x n
   B. D = (C - S)/n
   C. D = (C + S)/n
   D. D = C/S
   Answer: B. Equal annual amount: cost less scrap divided by life in years. (Key point: Straight line)

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