Appreciation

Posted in Finance, Accounting and Economics Terms, Total Reads: 870
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Definition: Appreciation

Capital Appreciation is defined as measure of increase in value of an asset. It is generally an estimate of how much the asset’s worth has risen. It is observed when an asset’s value is reevaluated and the increase is recognized.


If the price of an asset decreases over time, the measure is said to have depreciated. Appreciation/Depreciation is generally used in adjusting the value of assets in the accounting practices


Appreciation is generally observed in stock prices, commodities, value of money and trademarks (in case of brand recognition).


Depreciation is observed among a company’s machinery, building etc. Though, the value of land (real estate) is said to appreciate generally.


Example:

Person XYZ bought 100 shares of company ABC in 2010 at Rs 50 per share. The company pays dividend of Rs 2 per share every year. The stock price in 2011 is Rs 65 per share. Calculate the capital appreciation

Appreciation = Rs (65 – 50) = Rs 15 per share or 30%

Dividend Yield = Rs 2 or 4%

Total return on shares = Dividend gain + Appreciation = 34%



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