Depreciation

[viciam]

I'm trying to understand the concept of depreciation and I'm using an example in order for me to understand it better.

I buy a house for $100,000

Liabilities are utility bills $50 per week

Maintenance work is required, it will last 5 weeks with a total cost of £100. Now if I wanted to depreciate maintenance cost on my paper work, would it mean it would be listed as $100 on week one paper work, $80 on week 2, $60 week 3, $40 week 4, $20 week 5, and then the expense would no longer be listed on my paper work?

Is this how depreciation works?

 

[waimate01]

I'm trying to understand the concept of depreciation and I'm using an example in order for me to understand it better.

I buy a house for $100,000

Liabilities are utility bills $50 per week

Maintenance work is required, it will last 5 weeks with a total cost of £100. Now if I wanted to depreciate maintenance cost on my paper work, would it mean it would be listed as $100 on week one paper work, $80 on week 2, $60 week 3, $40 week 4, $20 week 5, and then the expense would no longer be listed on my paper work?

Is this how depreciation works?

I don't think you depreciate maintenance - I think you expense it immediately.

Better example: you buy a truck for $10,000. But you can't claim the $10,000 as an expense and a tax deduction. Instead, you have an asset worth $10,000. But ten years later that truck will only be worth $5000, so each year you can claim as an expense $500.

Depreciation is the difference between what you paid for something and what you could likely sell it for during its useful lifetime.

(There's different methods: straight line or reducing - google it).

 

[McLovin]

I don't think you depreciate maintenance - I think you expense it immediately.

You can depreciate maintenance where it is required to extend the life of the asset. So in your example, changing the brake pads and oil on your truck cannot be depreciated but an engine overhaul that allows the truck to keep going another few years can be.