What is appreciation?
Appreciation is basically when an asset gains in value over time. The asset in question can be a share, bond or commodity or it can be a physical asset such as real estate. It is the opposite of depreciation, when an asset’s value declines.
Where have you heard about appreciation?
Because companies are required to account for any appreciation of their assets, annual reports often contain references to any assets that have appreciated. Financial media look hard at the appreciation of a company's assets too, especially as it can make the company more attractive as a potential target for a takeover.
What you need to know about appreciation.
Some assets depreciate in value, others appreciate. This can be for various reasons.
A commodity may be in short supply, making it more valuable. Shares or bonds may be riding a market wave that greatly enhances their capital value. Real estate may be in demand during a construction boom, or as a hedge against inflation.
Whatever the reason, the owner of the asset in question will be showing a capital gain on their acquisition. Ahead of this being written into the company’s accounts and so becoming public knowledge, the gain could make the company a target for takeover by asset strippers.
Find out more about appreciation.
To learn more about asset values and their importance in company accounting, see our definition of depreciation.