What is a Depreciable Asset?§
A depreciable asset is a type of fixed asset that degrades in value over time due to wear and tear, usage, or obsolescence. Depreciation is the accounting process used to allocate the cost of a depreciable asset over its useful life. This allocation is done methodically to match the asset’s expense with the revenue it helps to generate.
Key Attributes of Depreciable Assets§
- Tangible Nature: Physical existence like machinery, buildings, vehicles.
- Long-Term Utility: Usefulness extends beyond one year.
- Cost Allocation: Subject to systematic expense recognition over its useful life.
- Non-Renewable: Cannot be replenished or renewed to retain its original form or value.
Examples of Depreciable Assets§
- Buildings: Office buildings, retail stores, warehouses.
- Machinery: Manufacturing equipment, industrial tools.
- Vehicles: Company cars, delivery trucks, airplanes.
- Office Equipment: Computers, printers, desks.
- Furniture: Office chairs, tables, filing cabinets.
Frequently Asked Questions (FAQs)§
What is the purpose of depreciating assets?§
Depreciation helps to spread the cost of an asset over the period it is expected to generate revenue, aligning the expense with the income the asset helps to produce.
Can land be a depreciable asset?§
No, land is not a depreciable asset because it does not lose value or wear out over time like buildings and equipment.
What methods are commonly used to calculate depreciation?§
Common methods include the Straight-Line Method, Declining Balance Method, and Units of Production Method.
What is salvage value in relation to depreciation?§
Salvage value is the estimated residual value of an asset at the end of its useful life, which is subtracted from the purchase cost to determine the total depreciable amount.
Are intangible assets subject to depreciation?§
No, intangible assets are subject to a different process called amortization, not depreciation.
Related Terms§
- Depreciation: The systematic process of expensing the cost of tangible assets over their useful lives.
- Amortization: The process of expensing intangible assets over their useful lifespan.
- Fixed Asset: Long-term tangible assets used in business operations that usually depreciate over time.
- Salvage Value: The estimated value an asset will have at the end of its depreciation period.
- Useful Life: The estimated duration over which an asset is expected to be utilized by a business.
Online Resources§
- Investopedia: Depreciation
- IRS: Publication 946: How To Depreciate Property
- AccountingTools: Depreciable Assets
Suggested Books for Further Studies§
- “Financial Accounting” by Walter T. Harrison Jr. and Charles T. Horngren - A comprehensive look at the principles of financial accounting.
- “Intermediate Accounting” by Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield - Detailed exploration of advanced accounting topics.
Accounting Basics: “Depreciable Asset” Fundamentals Quiz§
Thank you for embarking on this journey through our comprehensive accounting lexicon and tackling our challenging sample exam quiz questions. Keep striving for excellence in your financial knowledge!
