Fixed asset depreciation

Depreciation is the practice of allocating the cost of a fixed asset over its useful life.  This has been defined for accounting purposes as the decline in useful value of a fixed asset due to wear and tear from use and passage of time.

The cost incurred to acquire the property, plant and equipment must be spread over the expected useful life, taking into consideration the factors discussed above. For example: Suppose a delivery truck costs $10,000 and is expected to last five years. Using a straight-line” method of depreciation, $2,000 of the truck’s cost is allocated to each year’s income statement.  The balance sheet at the end of one year would show:

Truck (cost)
$10,000
          Less accumulated depreciation
    2,000
          Net depreciated value
$  8,000

At the end of the second year it would show:

Truck (cost)
$10,000
          Less accumulated depreciation
    4,000
          Net depreciated value
$ 6,000