Question

What are the 4 things we need to know to depreciate PPE?

Answer 1

To depreciate property, plant, and equipment (PPE), you need to know the asset's cost, its useful life, the salvage value, and the depreciation method. These factors must be accurately determined to ensure that financial statements reflect the asset's usage over time.

Step-by-step explanation:

To properly depreciate property, plant, and equipment (PPE), there are four primary details that you need to know:

1. Cost: The initial cost of the asset includes its purchase price, plus any costs necessary to bring the asset to a usable state.
2. Useful life: An estimate of how long the asset will be productively used in the operations of the business.
3. Salvage value: The estimated residual value of the asset at the end of its useful life.
4. Depreciation method: How the depreciation will be calculated over the asset's useful life (e.g., straight-line, declining balance, units of production).

It's critical for a business to understand these factors to ensure that their financial statements accurately reflect the wearing down of their PPE over time.