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Appreciation

Reviewed by Vineeth | Updated on Sep 30, 2020

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Introduction

Appreciation is referred to as the increase in the value of a capital asset over a given timeframe. This increase in the price can happen due to several reasons. This includes a rise in demand, reducing supply, and fluctuation in inflation or deflation rate. Appreciation is the opposite of depreciation, which reduces the value of an asset over time.

The term 'appreciation' is often used in accounting which refers to an increased adjustment in the value of an asset which is noted in a company's accounts book. The most commonly adjusted value of an asset is a downward one, called depreciation, which is done as the value of an asset reduces with use, like machinery being made use of beyond its lifetime.

Appreciation in the value of an asset in accounting is not common, while assets like a trademark can see an increase because of the rise in brand value.

Understanding Appreciation

Appreciation may often be used to attribute to a rise in an asset like bonds, stocks, real estate, and currency of a nation. For instance,'capital appreciation'attributes to a rise in the worth of fiscal instruments like bonds, which may happen due to numerous reasons like an improved financial execution of an enterprise.

One thing to note here is that if the value of a capital asset appreciates, then it does not necessarily mean that the owner will be able to realise the same.

Appreciation generally refers to a rise in the worth of a capital asset over a given timeframe. Capital appreciation often attributes to a rise in the worth of financial instruments such as bond and stocks due to several factors like favourable developments and improved performance of the company.

The most popular appreciation is the appreciation of the currency. This happens when the value of a particular currency rises against another in the forex market.

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