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What is Accumulated Depreciation?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 24 August 2016
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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 price, it is important to note the current market value of the asset. Current market value is the amount that the asset could be sold for today. The performance of the asset is also important to arriving at the accumulated depreciation. Specifically, it is important to note any revenue or interest that has been generated by the asset since the acquisition.

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Once there is a firm understanding of the costs or expenses associated with the asset, and the revenue gained from ownership of the asset, deduct the cost from the overall worth of the asset, including the purchase price and the revenue. The resulting figure will demonstrate the current level of accumulated depreciation, and helps to establish the book value.

In some cases, calculating the accumulated depreciation may involve allowing for what is known as a write-down. Essentially, the write-down is allowing for a reduction in the carrying amount, due to the fact that the purchase price was more than the current market value.

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anon39928
Post 3

please clarify that accumulative deprecation which side i have to show in my balance sheet.

omega47
Post 1

the property has a value of 3,400,000.

Mine improvements totaled $100,000.

Building and sheds were constructed at $700,000.

During the year, 500,000 tons were mined; 400,000 tons of this amount was sold at $2.50 per ton. expenses incurred and paid during the fiscal year were:

-mining expense 450,000

-delivery 60,000

-general and administrative 25,000

note: building and sheds will be useful over the life of the mine. therefore, depreciation is recognized in terms of mine output.

what is the accumulated depreciation and accumulated depletion in this problem?

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