A business example
For a simplified straight-line book calculation, a machine costs ₹1,20,000, has a ₹20,000 residual value and an estimated five-year useful life.
Depreciable amount
₹1,20,000 − ₹20,000 = ₹1,00,000.
Annual allocation
₹1,00,000 ÷ 5 = ₹20,000 per full year.
Accounting effect
The annual expense allocates cost; it is not a new cash payment.
What this shows
The useful life and residual value here are assumptions for the example, not prescribed tax rates or a conclusion about another asset.
What it is often confused with
Book depreciation and tax depreciation can differ; a non-cash charge is not a cash reserve for replacement.
What to look at in your business
Maintain asset cost, use date, useful life, residual value and disposal records.
Context and further reading
IFRS Foundation: IAS 16, paragraph 6 provides the accounting context for depreciable amount and residual value. Apply the accounting framework relevant to the business; tax depreciation is a separate calculation. Reference checked 2 October 2026.
This entry explains the business term. The related guide below provides the next layer of context; any applicable legal test depends on the transaction and relevant period.
Kosha.Services · Updated 2 October 2026