What is the Appraisal Method of Depreciation?

Under the appraisal method of depreciation, depreciation is calculated as the decline in the appraised value of an asset from the beginning to the end of a reporting period. If there is no decline in the appraised value during the period, then no depreciation is charged to expense. In essence, it shows the economic loss in value of an asset over the course of a reporting period.

Problems with the Appraisal Method of Depreciation

This method is not considered acceptable under generally accepted accounting principles. A key problem with it is that the appraisal value is a judgmental derivation, so a person could avoid charging depreciation by falsely inflating the ending appraised value of an asset. In effect, the appraisal method of depreciation could be used to fraudulently avoid charging any depreciation expense, thereby inflating an organization’s reporting earnings.