How to Depreciate a Used Asset
Depreciation is the steady decline in an asset’s value over time through use or age. Depreciation is a value-based consideration only, and can affect an asset even if the asset remains useful, working as it did on its first day. When purchasing a used asset whose value is affected by depreciation, the depreciation expense must still be accounted for. Fortunately, the accounting process is no different from that used to depreciate a new asset. By applying straight-line depreciation, the used value at purchase is used as the starting value, with depreciation applied yearly, slowly taking away the asset's value in the process.
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Instructions
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Take the purchase price of the asset and subtract from it any expected salvage value of the asset at the end of its useful life to calculate its depreciable cost. For example, a used asset purchased at $25,000 with a $500 salvage value has a depreciable cost of $24,500.
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Estimate the years of useful life from the asset. Contact the manufacturer of the asset and ask about the expected total life of the asset. Subtract the age of the object at purchase from the estimated life and use the remaining amount of time. If the manufacturer is unavailable, then use comparable examples of the asset for making an accurate estimation. Find other instances of the asset used until disposal and use the average time period between purchase and disposal as the useful life period.
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Calculate the annual depreciation expense by dividing the depreciable cost by the years of useful life. For an asset with a depreciable cost of $24,500 and 10 years of useful life, you’d have an annual depreciation expense of $2,450.
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Report the depreciation expense of the asset yearly to the income statement under operating expenses, along with the depreciation expenses realized from any other depreciable assets you own. Repeat the reporting process of the expense yearly.
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Subtract the yearly depreciation expense from the asset value and report the asset value on the balance sheet in the equipment section. Each year, subtract the depreciation expense from the asset value amount remaining from the year before and report this new descending value on the balance sheet.
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Stop reporting the depreciation expense on the income statement after the end of the useful life period, and report the asset value as the salvage value on the balance sheet until you dispose of the asset.
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