Appreciation definition
/What is Appreciation?
Appreciation is an increase in the value of an asset over time. This is one of the main reasons why investors hold certain assets, such as common stock, real estate, rare coins, and artwork. Investors are more likely to hold assets for which there is either a history or an expectation of value appreciation.
Why Does Appreciation Occur?
There are a number of reasons why assets can appreciate. For example, the supply of an asset may become restricted, perhaps because of border controls, or because the number of parties creating the asset have declined. Or, the demand for an asset may increase, perhaps because of legal requirements. A third option is that the inflation rate may increase, though the resulting appreciation may in fact be depreciation when the increase is adjusted for inflation.
The Difference Between Appreciation and Depreciation
Appreciation is an increase in the value of an asset, while depreciation is a decrease in the value of an asset. Appreciation can only rarely be recorded under generally accepted accounting principles, while depreciation is mandated under the same principles. The net result of this accounting is a conservative presentation of asset values.