Depreciated Cost


DEFINITION of 'Depreciated Cost'

1. The value of an asset net of all accumulated depreciation that has been recorded against it. It follows the formula of:

Depreciated Cost = Purchase Price (or cost basis) – {Cumulative Depreciation}

Depreciated cost is also known as the "net book value" or "adjusted cost basis".

2. In a broader economic sense, the depreciated cost for industry is the aggregate amount of capital that is "used up" in a given period, such as a fiscal year. This value can be examined for trends in capital spending and accounting aggressiveness.

BREAKING DOWN 'Depreciated Cost'

The depreciated cost method of asset valuation is an accounting tool used by both corporations and individuals. It allows for the books to always be carrying an asset at its current worth, and allows cash flows based on that asset to be measured in proportion to the value of the asset itself. It also allows for even tax treatment of large capital assets like homes, factories and equipment.

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