WHAT IS DEPRECIATION?

Depreciation is “the systematic and rational allocation of the acquisition cost of an asset, less its
estimated salvage value or residual value, over the assets estimated useful life.”1 Simply said, it’s a
way of allocating a portion of the cost of an asset over the period it can be used.

WHAT IS USEFUL LIFE?

Useful life is “an estimate of the average number of years an asset is considered useable before its
value is fully depreciated.”1

HOW IS USEFUL LIFE DETERMINED?

According to GASB 34, to estimate useful life, “governments can use (a) general guidelines obtained
from professional or industry organizations, (b) information for comparable assets of other
governments, or (c) internal information.”2 If not strictly following guidelines obtained from an
organization, you may find it helpful to consider an assets current condition, the quality of the asset,
or how the asset will be used when estimating its useful life. Regardless, we recommend that all
organizations have guidelines in place for how they plan to estimate useful life.

USEFUL LIFE ESTIMATES

Here are some examples of the useful life estimates recommended by AssetWorks.

CATEGORY DESCRIPTION USEFUL LIFE (yrs)

5
Machinery and Equipment Books and Multimedia Materials
5
Machinery and Equipment Computer Equipment
8
Licensed Vehicles General Automobile
10
Machinery and Equipment Science and Engineering Equipment
10
Machinery and Equipment Audiovisual Equipment
10
Machinery and Equipment Athletic Equipment
15
Machinery and Equipment Grounds and Maintenance Equipment
 20
Land Improvements Fencing
20
Machinery and Equipment Playground Structures

HOW IS DEPRECIATION CALCULATED?

While there are several forms of depreciation including straight-line and various accelerated
methods, many entities choose to apply straight line depreciation. Below is an example of how
straight-line depreciation can be calculated for a playground structure.

1. To calculate depreciation, we must first identify the acquisition cost, salvage value, and useful life.
For our playground structure, let’s say the cost was $21,500. We’ll use a salvage value of 0 and
based on the chart above, a useful life of 20 years.

2. If we apply the equation for straight line depreciation, we would subtract the salvage value from
the cost and then divide by the useful life.
The result would look something like this: ($21,500 – $0) / 20 years = $1075 annual depreciation.

Of course, there are many software programs out there that will not only help you track your
organizations assets but will also calculate depreciation and produce reports for you.

How does your organization currently calculate depreciation and account for capital assets? Stay
tuned for a more in depth look at topics like GASB 34, useful life and depreciation.

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