Depreciated Cost

What It Is:

Depreciated cost is the book value of an asset minus its accumulated depreciation. 

How It Works/Example:

Another term for depreciated cost is net book value.

The formula for depreciated cost is:

Depreciated Cost = Original Asset Price - Accumulated Depreciation

Assume Company XYZ bought a MegaWidget for $100,000 three years ago. The MegaWidget depreciates by $10,000 a year. Thus the depreciated cost of the MegaWidget is:

$100,000 - $10,000 (year 1 depreciation) - $10,000 (year 2 depreciation) - $10,000 (year 3 depreciation) = $70,000

Why It Matters:

Although depreciated cost is most simply stated as asset cost minus accumulated depreciation, it is by no means a precise measure of value. Accounting methods can assume that assets have a current value that may be unrealistic in the marketplace. For example, a company that owns a commercial real estate building with a resale value of $1 million may have fully depreciated the asset on its balance sheet, leaving it with a depreciated cost of zero. In this example, the book value of the asset -- and perhaps of the organization as a whole -- would therefore be understated.