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.