Accumulated depreciation

Accumulated depreciation is the total depreciation a company has charged on its assets since it bought them. It is subtracted from the original cost of property, plant and equipment to arrive at the net figure shown on the balance sheet.

The formula is:

Comparing accumulated depreciation with gross PP&E gives a rough sense of how old a company's assets are. A high ratio means much of the equipment is near the end of its useful life, which can signal heavy replacement spending ahead.

Depreciation follows accounting estimates, not the assets' market value, so the net figure can be far from what the assets would sell for, especially for land and buildings bought long ago.