Final answer:
The depreciable cost of an asset is calculated by subtracting the estimated salvage value from the asset's initial cost. This cost is then allocated over the asset's useful life to represent its depreciation.
Step-by-step explanation:
The depreciable cost of an asset is the asset's cost minus its estimated salvage value. This is a fundamental concept in accounting and business. Depreciable cost represents the total amount that can be depreciated over the lifespan of an asset. Businesses use this concept to allocate the cost of an asset over the years it is in use, reflecting its wear and tear, obsolescence, or other factors causing a decrease in value.
When calculating depreciation, a company takes the initial cost of the asset, subtracts the salvage value, and then divides this figure by the estimated useful life of the asset. The salvage value is essentially the estimated resale or scrap value of the asset after its useful life is over. It's vital for companies to estimate this accurately to ensure proper financial reporting and to make informed business decisions.