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Why can depreciation differ from an asset’s falling resale price?

A business may spread an asset's cost across the periods in which it is used. In a simple straight-line model, estimated useful life and residual value determine that allocation, rather than a new market price each year.

3–5 min

Questions you could explore

  • What happens to the annual allocation when either estimate changes?
  • Why are cost allocation and resale valuation different questions?

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