The apportionment of cost of a (usually large) capital item over an agreed period, (based on life expectancy or obsolescence), for example, a piece of equipment costing L10k having a life of five years might be depreciated over five years at a cost of L2k per year. (In which case the P&L would show a depreciation cost of L2k per year; the balance sheet would show an asset value of L8k at the end of year one, reducing by L2k per year; and the cashflow statement would show all L10k being used to pay for it in year one.)
