What is appreciation?
Appreciation, in a broad definition, refers to an increase in the value of an asset over a period of time. The growth can occur for many causes, including raised interest or weakening supply, or as a consequence of changes in inflation or interest rates. The expression is also applied in accounting when relating to an upward adjustment of the value of an asset kept on a company’s accounting books. The most common adjustment on the amount of an asset in accounting usually is a descending one, identified as depreciation, which is generally done as the asset loses financial value through use, such as equipment being used over time.
While appreciation of assets in accounting is not exactly common, intangible assets such as trademarks may see an upward value change due to increased brand recognition. Appreciation is useful when referring to an increase in an asset, such as a stock, bond, currency or property. For instance, the term “capital appreciation” points to a rise in the value of financial assets that may happen for different reasons especially when the financial performance of a company is improved.
Just because the cost of an asset appreciates does not necessarily mean its owner understands the increase. If the owner revalues the asset at its higher price on his financial statements, this represents a realization of the rise. Furthermore, “capital gain” is a term used to denote the profit realized by selling an asset that has appreciated in value.