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Definition of 'Accumulated Depreciation'
The cumulative depreciation of an asset up to a single point in its life. Regardless of the method used to calculate it, the depreciation of an asset during a single period is added to the previous period’s accumulated depreciation to get the current accumulated depreciation.
An asset’s carrying value on the balance sheet is the difference between its purchase price and accumulated depreciation.
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Investopedia explains 'Accumulated Depreciation'
A company buys an asset for $5,000 that has a five-year lifespan and zero salvage value. The company uses straight-line depreciation, and the asset depreciates at a rate of $1,000 per year.
In year one, depreciation will be $1,000, as will accumulated depreciation, and carrying value of the asset will be $4,000.
In year two, depreciation will be $1,000, accumulated depreciation will be $2,000 ($1,000 from the current year + $1,000 accumulated from previous years) and carrying value will be $3,000.
Each subsequent year will follow the same process.
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Knowing what the company's financial statements mean will help you to anaylze your investments.
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Companies make choices and assumptions in calculating depreciation, and you need to know how these affect the bottom line.
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Appreciate the different methods used to describe how book value is "used up".
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