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. For example, a business buys a machine for $10,000, and estimates that the machine 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.
The concept does not apply to an intangible asset, since this type of asset is amortized, rather than depreciated.