Depreciation Fundamentals

Allocating Asset Cost

Depreciation is the systematic allocation of a depreciable asset's cost over its estimated useful life. It is not a process of valuing an asset but rather matching the asset's cost with the revenues it helps generate.

Depreciable Cost = Cost − Residual (Salvage) Value

• Applies to depreciable tangible assets.
• Land is not depreciated.
• Depreciation follows the matching principle.
• Depreciation does not measure market value.