CURRENCY: Devaluation versus Depreciation

KNOW THE FINANCIAL DIFFERENCE

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BY DR. DAVID E. MARCINKO MBA CPM®

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Competitive World 27

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Devaluation is the deliberate downward adjustment of the value of a country’s money related to another currency, group of currencies or currency standard. It is often confused with depreciation and is the opposite of revaluation which refers to the readjustment of a currency exchange rate.

CITE: https://www.r2library.com/Resource/Title/0826102549

Definition

The government of a country may decide to devalue its currency and like depreciation it is not the result of non-governmental activities.

One reason a country made devalue its currency is to combat a trade imbalance. Devaluation reduces the cost of a country’s export rendering them more competitive in the Global market which is which in turn increases the cost of imports.

If imports are more expensive domestic consumers are less likely to purchase them further strengthening domestic businesses because exports increase and imports decrease there is typically a better balance of payments because the trade deficit shrinks. In short a country that devalue its currency can produce is difficult because there is a greater demand for cheaper exports.

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Advantages and disadvantages of devaluation - Economics Help

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In accountancy, depreciation refers to two aspects of the same concept: first, the actual decrease of fair value of an asset, such as the decrease in value of factory equipment each year as it is used and wear, and second, the allocation in accounting statements of the original cost of the assets to periods in which the assets are used (depreciation with the matching principle).

Depreciation is thus the decrease in the value of assets and the method used to reallocate, or “write down” the cost of a tangible asset (such as equipment) over its useful life span. Businesses depreciate long-term assets for both accounting and tax purposes. The decrease in value of the asset affects the balance sheet of a business or entity, and the method of depreciating the asset, accounting-wise, affects the net income, and thus the income statement that they report.

CITE: https://www.r2library.com/Resource/Title/0826102549

Generally, the cost is allocated as depreciation expense among the periods in which the asset is expected to be used.

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ORDER TEXT: https://www.routledge.com/Comprehensive-Financial-Planning-Strategies-for-Doctors-and-Advisors-Best/Marcinko-Hetico/p/book/9781482240283

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