depreciable cost

(noun)

original cost minus salvage value

Related Terms

Examples of depreciable cost in the following topics:

  • Depreciation

    • Depreciation refers to the allocation of the cost of assets to periods in which the assets are used.
    • Depreciation refers to two very different but related concepts: the decrease in value of assets (fair value depreciation) and the allocation of the cost of assets to periods in which the assets are used (depreciation with the matching principle).
    • Generally the cost is allocated, as a depreciation expense, among the periods in which the asset is expected to be used.
    • Depreciation is generally recognized under historical cost systems of accounting.
    • Under this method, annual depreciation is determined by multiplying the depreciable cost by a schedule of fractions.

  • Depreciation

    • Depreciation is the process by which an asset is used up, and its cost is allocated over a period of time.
    • Depreciation refers to two very different but related concepts: the decrease in value of assets (fair value depreciation), and the allocation of the cost of assets to periods in which the assets are used (depreciation with the matching principle).
    • The business records depreciation expense as an allocation of such costs for financial reporting.
    • Depreciation is any method of allocating net cost to those periods expected to benefit from use of the asset.
    • Describe the relationship between allocation of cost and the matching principle when calculating depreciation

  • Methods of Depreciation

    • The Modified Accelerated Cost Recovery System (MACRS) is the current tax depreciation system used in the United States .
    • The straight-line formula used to calculate depreciation expense is: (asset's historical cost - the asset's estimated salvage value) / the asset's useful life.
    • Under this method, annual depreciation is determined by multiplying the depreciable cost by a series of fractions based on the sum of the asset's useful life digits.
    • Apply the rate to the book value of the asset (cost subtracted by accumulated depreciation) and ignore salvage value.
    • Under MACRS, the capitalized cost (basis) of tangible property is recovered by annual deductions for depreciation over a specified life.

  • What Is Depreciation?

    • Depreciation is defined as the expensing of the cost of an asset involved in producing revenues throughout its useful life.
    • Depreciation for accounting purposes refers the allocation of the cost of assets to periods in which the assets are used (depreciation with the matching of revenues to expenses principle).
    • Depreciation expense also affects net income.
    • Generally the cost is allocated as depreciation expense among the periods in which the asset is expected to be used.
    • A depreciation method commonly used to calculate depreciation expense is the straight line method.

  • Factors for Calculating Depreciation

    • There are four main factors that affect the calculation of depreciation expense: asset cost, salvage value, useful life, and obsolescence.
    • So, companies can choose a method that allocates asset cost to accounting periods according to benefits received from the use of the asset.
    • The most important criteria to follow: Use a depreciation method that allocates asset cost to accounting periods in a systematic and rational manner.
    • The depreciation expense is reported on the income statement as a reduction to revenues and accumulated depreciation is reported as a contra account to its related Delivery Truck asset account (reduces the asset's cost to its book value) on the balance sheet.
    • Next, apply the resulting double-declining rate to the declining book value of the asset (cost subtracted by accumulated depreciation).

  • Impact of Depreciation Method

    • The depreciation expense is reported on the income statement as a reduction to revenues and accumulated depreciation is reported as a contra account to its related Delivery Truck asset account (reduces the asset's cost to its book value).
    • Sum-of-years-digits depreciation is determined by multiplying the asset's depreciable cost by a series of fractions based on the sum of the asset's useful life digits.
    • However, revenues may be impacted by higher costs related to asset maintenance and repairs.
    • Next, apply the resulting double-declining rate to the declining book value of the asset (cost subtracted by accumulated depreciation).
    • The depreciation method used to depreciate a car calculates an expense that reduces income.

  • Noncash Items

    • These often receive a more favorable tax treatment than short-term assets in the form of depreciation allowances.
    • Broadly speaking, depreciation is a way of accounting for the decreasing value of long-term assets over time.
    • On a more detailed level, depreciation refers to two very different but related concepts: the decrease in the value of tangible assets (fair value depreciation) and the allocation of the cost of tangible assets to periods in which they are used (depreciation with the matching principle).
    • In each period, long-term noncash assets accrue a depreciation expense that appears on the income statement.
    • Depreciation expense does not require a current outlay of cash, but the cost of acquiring assets does.

  • Reporting Assets

    • A business must report an asset's acquisition cost, how it is depreciated, any subsequent expenditures tied to it, and how it is disposed.
    • Costs associated with fixing used property so it can be used by the company are included in the acquisition costs.
    • Unnecessary costs associated with initially transporting the property to where it needs to go is not included in the acquisition cost.
    • The first is the cost of the asset.
    • The most common depreciation method type is "straight-line," where the depreciation rate is calculated by subtracting the asset's residual value from its acquisition cost and dividing the result by its useful life.

  • Depreciation

    • The overall cost for a company's new piece of machinery is 100,000.
    • Many tax systems require that the cost of items likely to produce future benefits be capitalized.
    • As a result, we should use the most economical, or simplest, method to calculate and incorporate its costs.
    • Since the declining balance method will never fully amortize the original cost of the asset, the salvage value is not considered in determining the annual depreciation.
    • Annual depreciation expense is equal to the original cost of the asset minus its salvage value, divided by the useful life of the asset.

  • Adjustments

    • Depreciation @ $20/monthAccumulated Depreciation 20, Depreciation Expense 20; Assets(-)=Equity(-)Augusta.
    • Depreciation @ $20/monthAccumulated Depreciation 20, Depreciation Expense 20; Assets(-)=Equity(-)c.
    • Depreciation on studio equipment (500 for 25 months = 20/month)Depreciation expense 20 Accumulated Depreciation 20c.
    • Based on this, revenues and associated costs are recognized in the same accounting period.
    • Inventory - in a periodic inventory system, an adjusting entry is used to determine the cost of goods sold expense.