What does the depreciation base represent?

The depreciation base represents the total amount of depreciation that will be allocated over the useful life of an asset. It is calculated as the cost of the asset less the residual value. The cost of the asset includes all expenditures necessary to acquire the asset and prepare it for use, which may comprise purchase price, transportation, installation costs, and any other expenses directly attributable to bringing the asset to a usable state.

By subtracting the residual value from the total cost, you arrive at the amount that can be depreciated over the asset's life, reflecting its anticipated decline in value as it is used. This method ensures that the expenses associated with the use of the asset are matched with the revenues generated during its useful life, aligning with the matching principle in accounting.

Understanding this concept is crucial as it directly influences the accurate reporting of an asset's value and the corresponding depreciation expense on financial statements, ultimately impacting business profitability and tax obligations.