How Depreciation Affects Value


Written by Joseph Blashack

Depreciation is a word that gets tossed around a lot in business, so it is safe to say most people have a vague understanding of it.  Many times, customers, or people in general, want to know what the value of their equipment is at any one given time.  Some have the opinion that all you have to do is take the original cost of the equipment divided by the life of the equipment and just subtract the periods it has been used, you arrive at the value.  However, that is not always the case.  It turns out there are multiple factors when coming up with an asset’s value.  For example, how the asset is used needs to be considered. In addition, the number of hours a machine has been run is another major variable to bear in mind.  Has it been running constantly for 24 hours a day, or has its run time been limited to match the length of business shifts? Another key factor to weigh, are the conditions the machine has been operating in.  Is housed in a climate-controlled laboratory, or is it used primarily in the field?  

As the Accounting and Finance Manager at IMV Technologies USA, I sometimes get asked the question from our sales team regarding the value of a customer’s piece of equipment. In many cases, the customer would like to trade it their equipment, or sell it on their own. We start with depreciation, but then we need to go further into the usage and environmental conditions. Often, depreciation is misunderstood as the obvious way to get to the value of an asset, but it is only a piece of the puzzle. It is more complex than that, and it is only one of the considerations when determining the value of a machine. 

The views expressed in IMV Technologies’ blog do not necessarily represent the views of the IMV Technologies Group but solely those of the blog post’s author