ASC 360-10-35-4 defines depreciation accounting as “a system of accounting which aims to distribute the cost or other basic value of tangible capital assets, less salvage (if any), over the estimated useful life of the unit (which may be a group of assets) in a systematic and rational manner.” Depreciation accounting is “a process of allocation, not of valuation.” It is intended to allocate an asset’s cost as equitably as possible to the periods during which the reporting entity benefits from the use of the asset.

Similarly, ASC 350-30-35-6 states that “a recognized intangible asset shall be amortized over its useful life to the reporting entity unless that life is determined to be indefinite.” If the precise length of the finite useful life is not known, the intangible asset should be amortized over the best estimate of its useful life. See BCG 8 for information regarding the accounting for the indefinite-lived intangible assets.

This chapter discusses various aspects of accounting for depreciation of tangible assets and amortization of finite-lived intangible assets, including determining the useful life and salvage value (see PPE 4.2), selecting the depreciation or amortization method (see PPE 4.3), and component depreciation (see PPE 4.4).

See FSP 3.6.3 for information on the classification and presentation of depreciation and amortization expense.