How is the depreciable amount calculated?

The depreciable amount is calculated by taking the cost of the asset and subtracting its salvage value. This calculation is essential because it determines the total amount that can be depreciated over the useful life of the asset. The cost represents the total expenditure incurred to acquire the asset, including any purchase price, delivery fees, and installation costs. The salvage value is the estimated residual value of the asset at the end of its useful life, which is the expected value that can be recovered after depreciation has been applied.

By subtracting the salvage value from the cost, you arrive at the amount that will be allocated as an expense through depreciation over the asset’s useful life. This approach reflects the asset's usage and helps in accurately matching expenses with revenues as per the matching principle in accounting. Understanding this calculation is crucial for proper asset management, cost accounting, and financial reporting.