Depreciation Depreciation is the process of allocating the depreciable cost of a long-lived asset, except for land which is never depreciated, to expense over the asset's estimated service life. Depreciable cost includes all costs necessary to acquire an asset and make it ready for use minus the asset's expected salvage value , which is the asset's worth at the end of its service life , usually the amount of time the asset is expected to be used in the business. For example, if a truck costs $30,000, has an expected salvage value of $6,000, and has an estimated service life of sixty months, then $24,000 is allocated to expense at a rate of $400 each month ($24,000 ÷ 60 = $400). This method of calculating depreciation expense, called straight-line depreciation , is the simplest and most widely used method for financial reporting purposes.
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