Accumulated Depreciation Explained Bench Accounting

Accumulated Depreciation on Long-Term Assets

To calculate net book value, subtract the accumulated depreciation and any impairment charges from the initial purchase price of an asset. After three years, the company records an asset impairment charge of $200,000 against the asset. At that point, the accumulated depreciation for the asset is $300,000. This means that the asset’s net book value is $500,000 (calculated as $1,000,000 purchase price – $200,000 impairment charge – $300,000 accumulated depreciation). Calculating accumulated depreciation is a simple matter of running the depreciation calculation for a fixed asset from its acquisition date to the current date. Accumulated depreciation is recorded as a contra asset via the credit portion of a journal entry.

Get instant access to video lessons taught by experienced investment bankers. Learn financial statement modeling, DCF, M&A, LBO, Comps and Excel shortcuts. Suppose that a company purchased $100 million in PP&E at the end of Year 0, which becomes the beginning balance for Year 1 in our PP&E roll-forward schedule. A balance transfer is the transfer of a balance of debt from one account to another, often to transfer balances between credit cards. Then, to get the depreciation in year 2, you take the vehicle’s $20,000 value at the start of the year (i.e., the $25,000 original value minus the first year’s $5,000 depreciation).

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