What is defined as depreciation in the context of asset management?

Depreciation in asset management refers specifically to the decline in value of an asset over time. This loss of value occurs for several reasons, including wear and tear from use, obsolescence due to advancements in technology or changes in consumer demand, and other factors that can impact the asset's worth.

Understanding this concept is essential in various fields, including insurance and finance, where accurately assessing the value of assets over their useful life can influence decision-making processes, like asset valuation for claims or tax purposes. Thus, defining depreciation as the loss of value due to these physical or functional factors provides a clear and practical understanding of how assets may decrease in worth, making it a critical aspect in financial reporting and asset management overall.