The document defines depreciation as the gradual and permanent decrease in the value of an asset over time due to factors like wear and tear, depletion, and obsolescence. It then discusses various depreciation methods like straight-line, declining balance, and sum of years digits. Under straight-line depreciation, a fixed amount is deducted each year so the asset's book value decreases linearly over its life. Declining balance method uses a fixed percentage of the previous year's book value, so depreciation is higher in early years. Sum of years digits weights depreciation towards earlier years based on the asset's total useful life. The document provides examples of calculating depreciation under these methods.