Depreciated Cost

Depreciated cost is the value of a fixed asset after subtracting the accumulated depreciation recorded against it. It shows how much of an asset’s original cost has been used up and represents the asset’s carrying value on the balance sheet at a given point in time.

Key takeaways

• Depreciated cost = original cost − accumulated depreciation.
• It reflects the asset’s book value, not its market value.
• Useful for assessing capital spending, asset usefulness, and accounting methods.
• Related terms: net book value and adjusted cost basis; salvage value typically refers to the estimated residual value at disposal.

How it works

Businesses use depreciated cost to allocate an asset’s purchase price over its useful life. Depreciation reduces the asset’s book value each accounting period, which:
* Aligns expense recognition with the asset’s economic use,
* Helps measure cash flows generated relative to the asset’s remaining value,
* Reveals management’s choices about depreciation methods and estimates (useful life, residual value).

Depreciated cost differs from market value. Market value is determined by supply and demand; depreciated cost is an accounting measure based on cost and accumulated depreciation.

Formula

Depreciated cost = Purchase price (cost basis) − Cumulative (accumulated) depreciation

Where cumulative depreciation is the total depreciation expense recorded for the asset to date.

Example

A construction company bought a crane for $50,000. It can sell the inoperable crane for parts for $5,000.
Salvage (residual) value: $5,000
Total depreciable amount: $50,000 − $5,000 = $45,000
* If useful life = 15 years, straight-line depreciation = $45,000 / 15 = $3,000 per year
After n years, the depreciated cost (book value) = $50,000 − ($3,000 × n). At the end of 15 years the depreciated cost equals the salvage value of $5,000.

Practical considerations

• Depreciation method matters: straight-line spreads cost evenly; accelerated methods front-load expense. Method choice affects reported profit and book value.
• Estimates (useful life, residual value) affect accumulated depreciation and thus depreciated cost.
• For disposal or impairment decisions, compare depreciated cost to expected recoverable amount or market price.

Depreciated cost is a fundamental accounting concept that helps businesses match costs with benefits over time and evaluate the remaining economic value of long-lived assets.