Changes

In accounting, depreciation is not an attempt to value an asset, but rather to allocate its cost over a period of time.  The basic formula for depreciation is Cost minus salvage value, the result of which is divided by service life.  While there are many different ways to calculate depreciation, the easiest to understand is straight line.

In accounting, depreciation is not an attempt to value an asset, but rather to allocate its cost over a period of time.  The basic formula for depreciation is Cost minus salvage value, the result of which is divided by service life.  While there are many different ways to calculate depreciation, the easiest to understand is straight line.

Suppose a company buys machinery for %50,000, expects it to last seven years and be sold for scrap for $1,000 at the end of seven years.  Under straight line depreciation methods, the machine would be depreciated at $7,000 per year.

Suppose a company buys machinery for $50,000, expects it to last seven years and be sold for scrap for $1,000 at the end of seven years.  Under straight line depreciation methods, the machine would be depreciated at $7,000 per year.

As a practical matter, most companies will have a depreciation policy which states which states how various broad categories of assets will be depreciated.

As a practical matter, most companies will have a depreciation policy which states which states how various broad categories of assets will be depreciated.