What is Depreciated Cost?
The formula for depreciated cost is:
Depreciated Cost = Original Asset Price - Accumulated Depreciation
How Does Depreciated Cost Work?
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- ($25,000 annual x 5 years) = $125,000
The depreciated cost, or, of the truck fleet is $125,000.
Why Does Depreciated Cost Matter?
Although depreciated cost is most simply stated as Accounting methods can assume that 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 on the balance sheets to indicate a net value of zero. In this example the book value of the -- and perhaps of the organization as a whole -- would therefore be understated.cost minus accumulated , it is by no means a precise measure of value.
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