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Machinery and Equipment Depreciation

July 28, 2010

The word “depreciation” has different meanings, depending on the audience to whom you are speaking. In accounting, depreciation means the allocation of the cost of an asset over time. It’s a method of allocating the purchase price of an asset across its useful life, which takes into account normal wear and tear over the asset’s duration. For machinery and equipment appraisers, the term means something different. It is the estimated decrease in value of an asset from the initial purchase price, based on a number of criteria, including physical, functional, and/or economic factors.

If an asset that is 20 years old is still functional, still being used, or if there is an active market for the asset, it still has value from an appraisal perspective. Although it may not have value from an accounting perspective, if the business owner sold the asset, it would be worth more than zero, which would be its worth from an accounting perspective.

Depreciation can be confusing, so it’s always best to speak to a Certified Machinery & Equipment Appraiser (CMEA) if you have questions about the depreciation of your machinery and equipment, or if you are looking to sell.

By: NEBB Institute

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