Depreciable cost definition
/What is Depreciable Cost?
Depreciable cost is the combined purchase and installation cost of a fixed asset , minus its estimated salvage value . Depreciable cost is used as the basis for the periodic depreciation of an asset. The concept does not apply to an intangible asset , since this type of asset is amortized , rather than depreciated.
Example of Depreciable Cost
As an example of depreciable cost, a business buys a machine for $10,000, and estimates that it will have a salvage value of $2,000 at the end of its useful life . Therefore, the depreciable cost of the machine is $8,000, which is calculated as follows:
$10,000 Purchase price - $2,000 Salvage value = $8,000 Depreciable cost
The company then uses a depreciation method, such as the straight-line method , to gradually charge the $8,000 depreciable cost to expense over the useful life of the machine. It may use an accelerated depreciation method if it wants to charge a higher proportion of the depreciable cost to expense in the first few years of the asset’s useful life.
