Depreciated Cost

What Is Depreciated Cost?

Depreciated cost is the value of a fixed asset minus all of the accumulated depreciation that has been recorded against it. In a more extensive economic sense, the depreciated cost is the aggregate amount of capital that is "spent" in a given period, like a fiscal year. The depreciated cost can be analyzed for trends in a company's capital spending and how aggressive their accounting methods are, seen through how precisely they work out depreciation.

Depreciated cost is otherwise called the "salvage value," "net book value," or "changed cost basis."

How Depreciated Cost Works

The depreciated cost method of asset valuation is an accounting method utilized by organizations and people to decide the helpful value of an asset. It's important to note that the depreciated cost isn't equivalent to the market value. The market value is the price of an asset, in view of supply and demand in the market.

The depreciated cost is the value of an asset after its helpful life is complete, diminished over the long haul through depreciation. The depreciated cost method generally takes into consideration accounting records to show an asset at its current value as the value of the asset is continually decreased by working out the depreciation cost. This additionally considers measuring cash flows produced from the asset comparable to the value of the asset itself.

The Formula for Depreciated Cost

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Illustration of Depreciated Cost

In the event that a construction company can sell an inoperable crane for parts at a price of $5,000, that is the crane's depreciated cost or salvage value. On the off chance that a similar crane initially cost the company $50,000, the total amount depreciated over its helpful life is $45,000.

Assume the crane has a valuable life of 15 years. Right now, the company has all the data it necessities to compute every year's depreciation. The most straightforward method is the straight-line depreciation. This means that there is no curve to the amount of appreciation, whether that is an immediate 30% depreciation seen while driving new cars off the parcel or an increased depreciation when a thing is close to requiring major repairs. Utilizing this method, depreciation is a similar consistently. It equals total depreciation ($45,000) isolated by the helpful life (15 years), or $3,000 each year.

Features

• The depreciated cost assists companies with evaluating their capital spending habits as well as their accounting methodology.
• The depreciated cost is otherwise called the "salvage value," "net book value," or "changed cost basis."
• The value of an asset after its helpful life is complete is estimated by the depreciated cost.
• Depreciated cost is the value of a fixed asset minus the accumulated depreciation that has been all recorded against it.