Series 22: 2.2.1.1. Elements For Determining A Depreciation Charge

 2.2.1.1.  Elements for Determining a Depreciation Charge

In determining the amount of a depreciation charge, four factors must be taken into account: the cost of the asset, its residual or salvage value, its useful life (recovery period), and its pattern of use (recovery method).

Asset Cost. The cost of the asset includes not only its purchase price but also any related expenditures required in obtaining the asset and preparing it for use. Taxes, freight charges, insurance, and installation costs are all included in the depreciable cost of an asset. With respect to real estate, any costs necessary to prepare a purchased property for occupancy are also a depreciable asset cost.

Salvage Value. Salvage or residual value is an estimate of the asset’s market value wh