Depreciable Basis: Definition
Depreciable basis is the asset acquisition cost less its estimated residual value.
Depreciable Basis: Explanation
The total amount of depreciation that should be recorded 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% of companies 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 needs to be made, information concerning its amount is available from the firm’s prior experience, manufacturers, or trade associations of users.