What is Depreciable Cost?

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. The concept does not apply to an intangible asset, since this type of asset is amortized, rather than depreciated.

Example of Depreciable Cost

As an example of depreciable cost, a business buys a machine for $10,000, and estimates that it 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. It may use an accelerated depreciation method if it wants to charge a higher proportion of the depreciable cost to expense in the first few years of the asset’s useful life.