Economically, consumption of fixed capital, (depreciation), is best described as a deduction from income to account for the loss in capital value owing to the use of capital goods in production. Its primary importance in an accounting sense is in its use as the "netting" component in estimates of net domestic product, net national income, etc., as described in earlier sections, and, so, in its ability to permit analyses that are closer to a welfare perspective than gross measures. It also constitutes one part of the costs of capital services and so plays a role in productivity measurement. Moreover it has a direct impact on GDP because estimates of non-market value-added explicitly include a component for depreciation.

With the implementation of the 2008 SNA the asset boundary was expanded to include R&D and military weapons systems. Consumption of fixed capital is consequently increased by their corresponding depreciation.

Definition

The 2008 System of National Accounts defines consumption of fixed capital (depreciation), in the following way:

Consumption of fixed capital is the decline, during the course of the accounting period, in the current value of the stock of fixed assets owned and used by a producer as a result of physical deterioration, normal obsolescence or normal accidental damage. [...2008 SNA para. 6.240] Losses due to war or to major natural disasters that occur very infrequently [...] are not included under consumption of fixed capital. [...2008 SNA para 6.244] The values of the assets lost in these ways are recorded in the other changes in the volume of assets accounts. [...2008 SNA para 6.244]

 The term depreciation is often used in place of consumption of fixed capital but it is avoided in the SNA because in commercial accounting the term depreciation is often used in the context of writing off historic costs whereas in the SNA consumption of fixed capital is dependent on the current value of the asset. [2008 SNA para. 6.240]

Depreciation in business accounts is typically measured differently from depreciation in the national accounts. The latter measures depreciation by applying a "depreciation coefficient" to the current value of each capital asset whereas company accountants typically apply a depreciation coefficient to the value of the capital good at its original purchase price ("historic cost"). When the prices of capital goods rise, the difference can therefore be significant.

With the increasing importance of high-tech capital goods that undergo rapid technical change, there has been renewed discussion about the measurement of depreciation. In particular, some have argued that depreciation should incorporate expected real holding losses on the grounds that this is the appropriate way of capturing expected obsolescence. Others have come to a different conclusion, and draw a distinction between value changes of an asset due to ageing (which they identify with depreciation) and value changes due to overall price changes of the group of capital goods; which corresponds to the position of the SNA and, indeed, the practice of statistical offices.