Why can depreciation differ from an asset’s falling resale price?
A business may spread an asset's cost across the periods in which it is used. In a simple straight-line model, estimated useful life and residual value determine that allocation, rather than a new market price each year.
Questions you could explore
- What happens to the annual allocation when either estimate changes?
- Why are cost allocation and resale valuation different questions?
Start reading
- OpenStax, Rice University11.3 Depreciation Methods to Allocate Capitalized Costs
OpenStax explains depreciation as cost allocation and introduces the straight-line method; tax treatment and current reporting rules are separate.
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