How to Recover Cost Base From Depreciation Expenses
Most organizations have physical assets, such as equipment, machinery and vehicles, to help with business operations. A company's assets are one of the basic factors of accounting, and the worth of assets is recorded on the company balance sheet along with liability and stockholder equity. Government-approved accounting rules state that accountants must record assets at historical cost, which is the amount initially paid for the asset. However, physical assets lose value over time as the assets get older and worn out. Accountants compensate for asset aging by applying depreciation calculations. To recover the historical cost, or cost base, from a deprecated asset, accountants must reverse previous depreciation calculations.
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Instructions
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Determine the useful life of the asset. Useful life is how many units of time, usually in years, the asset is estimated to last. The useful life has already been calculated to help determine the deprecation rate, but the actual number of years won't be recorded on the balance sheet.
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Note the current recorded cost of the asset. This is the historical cost minus deprecation and salvage value.
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Note how many years the asset's useful life has been subject to deprecation and the monetary amount of the deprecation.
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Multiply the number of years subject to depreciation by the monetary amount of deprecation. Add this number to the current recorded cost of the asset.
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Add the salvage value of the asset. The salvage value is the scrap value of the asset at the end of its useful life. Accountants initially subtract salvage value when they begin depreciation.
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Subtract any expenses added to the base cost. This may include expenditures made to acquire the asset or make it ready for your intended use. You now have now completely recovered the base cost of the asset.
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Tips & Warnings
This demonstrates asset cost recovery for accountants using the straight-line method of asset deprecation. While straight-line is by far the most popular method of deprecation, a few accountants use other methods such as declining balance or units-of-activity.
