Depreciated cost

Depreciated cost is the remaining cost of an asset after the related amount of accumulated depreciation has been deducted from it. In essence, it is the residual amount of an asset that has not yet been consumed. The formula for depreciated cost is:

Acquisition cost - Accumulated depreciation = Depreciated cost

For example, if a company purchased industrial equipment for $100,000 and subsequently depreciated the machine at the rate of $10,000 per year, the depreciated cost of the asset would be $30,000 at the end of seven years.

Technically, the concept does not include any additional write-downs for the impairment of an asset, since the term only refers to depreciation. Nonetheless, impairment charges should also be included in the depreciated cost calculation, since these charges have in fact reduced the net book value of an asset.

The depreciated cost concept is not meant to equate to the market value of an asset. Depreciated cost is simply intended to gradually reduce the cost of a fixed asset over its useful life, while market value is based on the supply of and demand for a fixed asset in the marketplace. The two concepts can yield significantly different values for the same asset.

The concept can encompass the use of any type of depreciation, ranging from straight-line depreciation to one of the accelerated depreciation methods.

Similar Terms

Depreciated cost is also known as net book value.

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