Depreciated Value Definition

• Depreciated value is also known as actual cash value. It is the value of your item or equipment if you were to attempt to sell it on the open market in its present condition. The term depreciation refers to the fact that except for certain precious metals, collectibles and similar items, material goods decrease in value according to age and use. Even if your computer functions perfectly and you've been diligent about upgrades and maintenance, it will still be worth less than a similarly equipped new computer.
  
  

Replacement Value Definition

• Replacement value refers to the original cost of the item when you purchased it. It is the cost you would have to pay to purchase an item of equal or greater value which included all of the significant features of your present item. For instance, to replace your computer, it is unlikely that you purchased a bare machine. Your computer almost certainly included an operating system. You probably have purchased or downloaded software programs since you purchased your computer, and likely peripherals as well.
  
  

Depreciated Value Advantages

• As a small business owner or independent consultant, the advantages of assigning depreciated value to your items or equipment is most evident at tax time. The Internal Revenue Service allows small business owners and independent consultants to deduct the original purchase price of newly purchased business related supplies or equipment. However, the IRS also allows you to deduct the depreciated value of items or merchandise every year, accounting for not only for the purchase price, but also ordinary wear and tear over the useful life of the equipment.
  
  

Replacement Value Advantage

• The advantages of utilizing replacement value are evident in the process of insuring your household or business against loss. Replacement value insurance premiums are more expensive than those for depreciated value insurance. However, obtaining an insurance policy that pays replacement value for your items means that you will be able to purchase equipment with current technology and features, rather than settling for a stripped down model or worse, not being able to afford to replace your items at all.