Depreciation, from an appraisal perspective, is rather different than an accounting or finance perspective. If machinery or equipment is still functional, being used, or if there is an active market for similar types of equipment, it still has value. In accounting and finance, depreciation means the allocation of the cost of an asset over time. It is a way of allocating the purchase price of an asset across its useful life, which takes into account what is considered normal wear and tear over the life of an asset.
For an asset that is 20 years old, if the owner of the asset were to sell the asset, it would have some value. From an accounting perspective and for tax purposes, the value would be $0; but from an appraisal perspective, the value likely would be greater than $0. Depreciation with regard to machinery and equipment appraisal is the estimated decrease in value from the initial purchase price of an asset based on a number of criteria, including physical, functional, and economic factors.
It can be somewhat challenging to understand the differences between what depreciation means in accounting terms and what it means in appraisal terms. If you have questions or are looking to sell your machinery or equipment, it’s always best to speak to a professional certified machinery and equipment appraiser (CMEA) about the depreciation of your machinery and equipment.