___________ is an annual allowance for wear and tear of a capital good.

Depreciation

The correct answer is Option 3: Depreciation

Depreciation is thus an annual allowance for wear and tear of a capital good. In other words it is the cost of the good divided by number of years of its useful life.

Goodwill: This is an intangible asset representing the reputation or brand value of a business. It's not related to the wear and tear of physical assets.
Amortisation: This term is typically used for the process of spreading the cost of intangible assets (like patents or copyrights) over their useful life, not for tangible capital goods.