Asset depreciation refers to the reduction in value of a tangible asset over time, often due to wear and tear, age, or obsolescence. Businesses use depreciation to allocate the cost of an asset over its useful life, reflecting its decreasing value on financial statements. This process helps in accurately assessing the company's financial health and tax obligations. There are various methods of calculating depreciation, such as the straight-line method and the declining balance method. Each method affects the financial reporting and tax implications differently. Understanding asset depreciation is essential for effective financial management and accounting practices.