Depreciable Basis Definition
The total amount of depreciation to be taken in an asset’s life is called its depreciable basis. The amount is the difference between the value of the asset at the beginning of its life (cost) and its estimated value at the end of its life (salvage value).
The use of estimated salvage value is not well established in practice. in fact, a major survey revealed that 59 percent of the responding firms simply assume a salvage value of zero. Three reasons cited for this assumption were the lack of materiality, the inability to estimate salvage value with reliability, and the fact that salvage value can usually be ignored for tax purposes. If an estimate is to be made, information concerning its amount is available from the firm’s prior experience, manufacturers, or trade associations of users.
About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True contributes to his own finance dictionary, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.