 # Depreciated Cost

## What it is:

Depreciated cost is the cost of an asset minus its accumulated depreciation. Another term for this concept is net book value.

The formula for depreciated cost is:

Depreciated Cost = Original Asset Price - Accumulated Depreciation

## How it works (Example):

Let's assume Company XYZ purchased 10 trucks at the same time five years ago for a total cost of \$250,000. The trucks have a 10-year useful life, so the fleet depreciates each year by \$25,000 per year (\$250,000 / 10). Because five years have gone by, the depreciated cost of the fleet is now:

\$250,000 original cost - (\$25,000 annual depreciation x 5 years) = \$125,000

The depreciated cost, or net book value, of the truck fleet is \$125,000.

## Why it Matters:

Although depreciated cost is most simply stated as asset cost minus accumulated depreciation, it is by no means a precise measure of value. Accounting methods can assume that assets have a current value that may be unrealistic in the marketplace. For example, a company that owns commercial real estate with a resale value of \$1 million may have fully depreciated the asset on the balance sheets to indicate a net value of zero. In this example the book value of the asset -- and perhaps of the organization as a whole -- would therefore be understated.