Which term best describes the gradual reduction in value of an asset over time?

The term that best describes the gradual reduction in value of an asset over time is depreciation. This concept is fundamental in accounting and finance, reflecting how tangible assets, like machinery and equipment in agricultural engineering, decrease in value due to wear, tear, and obsolescence as they age. Depreciation helps businesses allocate the cost of an asset over its useful life, allowing for a more accurate representation of financial health and asset value on the balance sheet.

Amortization is similar to depreciation but typically applies to intangible assets, such as patents or copyrights, rather than physical assets. Capitalization involves adding a cost to the balance sheet rather than recognizing it as an expense, which does not pertain to the reduction in asset value. Expenditure refers to the outflow of money or resources for goods and services but does not specifically address value reduction over time. Thus, depreciation is clearly the most appropriate term in this context.