1. If you are appraising the value of an asset, the depreciable life is the estimated useful life of that asset.

Here's an example: If you purchase a house, then you can have an appraiser come and determine how long the roof is going to last. If the appraiser says that the roof will last for 20 years, then the roof has a 20-year depreciable life.

2. If you are determining the life of an asset for various tax purposes, then the depreciable life of an asset can be defined as the number of years over which you can spread the cost of an asset.

Here's an example to determine this type of depreciable life. Let's go back to the house that you bought. For tax purposes, an appraiser states that the house itself has a 35 year depreciable life, which is what you consider it as when you are determining the depreciable life of an asset for accounting purposes.

Depreciation is the amount of the historical value that an asset loses each year, or for a particular period of time. The amount of the historical value of the asset is reported on your income statement as the Depreciation Expense. Basically, when you are doing when you are calculating the depreciation, is you are simply transferring part of that particular asset's cost from your balance sheet to your income statement for every year of the depreciable life of the asset.

There are two different principles that go into determining and reporting the depreciation of an asset: the cost principle and the matching principle.

1. The cost principle states that the depreciation expense that you record on your income statement, along with the asset value that you report on your balance sheet, must be determined by and based on the historical cost of the asset.

   The historical cost of the asset is what you originally paid for the asset. This means that you aren't going to determine the depreciation expense or the asset value on what you would have to pay today to replace your asset, or what the current market says the asset is worth.

2. The matching principle basically says that you have to allocate the cost of the asset to the depreciation expense over the depreciable life of the asset.

When you are working the matching principle, there are two different approaches that you can use to determine the depreciation rate of the asset. They are called straight-line depreciation and accumulated depreciation.

We should mention here that the kinds of assets that we are discussing are things like depreciable assets, fixed assets, constructed assets, and property. Land does not fall into any of these categories because it is assumed that land cannot be destroyed and thus cannot depreciate in value through the years.

Straight-line depreciation is calculated by stating that the depreciation for an asset is going to be the same for every year for the depreciable life of that asset. So, if you have a particular piece of machinery, you will decide that it is depreciable for $500 a year. This just means that you will subtract $500 each year from its value. Accumulated depreciation allows depreciation to accumulate through the years. This means that as the depreciable life of an asset wears on, you will subtract more and more of its value because of its depreciation.

Obviously, determining depreciation and the depreciable life of an asset is more complicated than this. Hopefully this gives you a good idea of the basic nature of determining depreciation and the depreciable life of an asset. Keep in mind that all assets will depreciate at different rates, and that the depreciation rate is also determined by various regulations set up by the IRS. Consult the appropriate IRS publications for more information.