Answer: option 1. decrease in value.
Explanation:
1) Depreciation is a technical term of the accounting and finance disciplines.
2) Yet, you can know from the ordinary language something depreciated is something that has lost value.
3) Most actives (houses, cars, computers, machines) lose value either with time or with use (usually both).
4) Some objects that do not get depreciated are the precious metals and the valuable objects like art and collections (specially rare collections).
5) The depreciation is a lost of value, so the enterprises reflect it in their accounting as a cost.
6) There are several methods of depreciation. The simplest is the linear depreciation with a rescue value.
7) Example: Suppose you think that a car has a lifetime of 5 year, that the rescue value is 20% of its purchase value, and that you choose to depreciate it linearly.
Then, the depreciation year depreciaton is equal to:
[purchase price - rescue value] / number of years = [100% - 20%] / 5 = 80% / 5 = 16% of the original price each year.
Suppose the original price was $ 35,000.
Then, the year depreciation will be 16% × 35,000 = $5,600, which means that the car will value $5,600 less each year.
A table will show you the value of the car each year
year initial value depreciation final value
1 35,000 5,600 29,400
2 29,400 5,600 23,800
3 23,400 5,600 18,200
4 18,200 5,600 12,600
5 12,600 5,600 7,000 ← rescue value
As you see the rescue value is the 20% of the purchase price (20% × 35,000 = 7,000).
