Which Assets Cannot Be Depreciated?

Position：home

Which Assets Cannot Be Depreciated?

Depreciation is a non-cash expense that reduces the value of an asset over time. According to the Financial Accounting Standards Board (FASB), an asset is depreciated if it meets all of the following criteria:

It is used in a business or held for the production of income.
It has a limited useful life.
Its future benefits can be reliably estimated.

Certain types of assets are not depreciated because they may not meet one of the depreciation criteria.

Land

Land is not depreciated because it has an indefinite useful life. This means that the benefits from using the land will never expire.

Natural Resources

Natural resources, such as minerals and oil, are not depreciated because their future benefits cannot be reliably estimated.

which assets cannot be depreciated

Inventory

Inventory is not depreciated because it is not used in a business or held for the production of income. Instead, it is held for sale to customers.

Goodwill

Goodwill is not depreciated because it is an intangible asset. Goodwill is typically recorded when a company acquires another company for more than its net worth.

Investments

Investments, such as stocks and bonds, are not depreciated because they are not used in a business or held for the production of income.

Intangible Assets

Intangible assets, such as patents and trademarks, are not depreciated because their useful lives are indefinite.

Which Assets Cannot Be Depreciated?

Assets Used in Personal Use

Assets that are used for personal use are not depreciated. This includes assets such as vehicles, boats, and vacation homes.

Table 1: Depreciable Assets

Asset	Useful Life	Depreciation Method
Building	39 years	Straight-line
Furniture and fixtures	7-15 years	Double-declining balance
Equipment	5-10 years	Sum-of-the-years'-digits
Computers and software	3-7 years	Straight-line
Vehicles	5-8 years	Double-declining balance

Table 2: Non-Depreciable Assets

Asset	Reason
Land	Indefinite useful life
Natural resources	Future benefits cannot be reliably estimated
Inventory	Not used in a business or held for the production of income
Goodwill	Intangible asset
Investments	Not used in a business or held for the production of income
Intangible assets	Indefinite useful lives
Assets used in personal use	Not used in a business or held for the production of income

Tips for Identifying Non-Depreciable Assets

Here are some tips for identifying non-depreciable assets:

Consider the asset's useful life. If the asset has an indefinite useful life, it is not depreciated.
Determine if the asset is used in a business or held for the production of income. If the asset is not used in a business or held for the production of income, it is not depreciated.
Check if the asset's future benefits can be reliably estimated. If the asset's future benefits cannot be reliably estimated, it is not depreciated.

Conclusion

Depreciation is an important accounting concept that can help businesses reduce their tax liability. However, not all assets are depreciated. If an asset does not meet all of the depreciation criteria, it will not be depreciated.