What is Accumulated Depreciation?
Accumulated depreciation has to do with determining the current net worth of a given asset. As part of the process of calculating the accumulated depreciation for an asset or a group of assets, it is necessary to take several factors into consideration, ranging from the original purchase price to the current level of return on the investment. Because accumulated depreciation involves arriving at an aggregate state of worth of assets at a given point in time, it is necessary to determine the period that is to be reviewed. Generally, the time frame will begin with the date of purchase of the asset, and extend to the end of a current fiscal or calendar period. Setting the time perimeter is important, as calculating depreciation is all about comparing expenses related to the asset that are incurred in a given period of time, versus the worth of the asset during that same period. Several key elements of data are necessary to calculate the accumulated depreciation. Along with the purchase pr
TO be able to explain accumulated depreciation we must first explain depreciation. Depreciation is how much a “thing” loses value over time. For example, if i have a brand new cellphone it will cost like 12,000 pesos. But if its three months old and already scratched, it will be worth only 8,000 pesos. It has DEPRECIATED. and 8,000 pesos is its depreciated value. Now in the case of corporations who report financial statements to stockholders, items like desks and computers etc. must be reported at their depreciated values every year since their values are not the same when they were bought brand new. This is to maintain honesty and transparency to the true worth of the assets of a corporation. this depreciated value is then called ACCUMULATED DEPRECIATION in balace sheets.
