Question

How do we calculate depreciation?

Answer 1

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• Subtract the asset's salvage value from its cost to determine the amount that can be depreciated.
• Divide this amount by the number of years in the asset's useful lifespan.

Answer 2

To calculate depreciation subtract the asset’s salvage value from its cost to determine the amount that can be depreciated. Divide this amount by the number of years in the asset’s useful lifespan. Divide by 12 to tell you the monthly depreciation for the asset

The value of a business asset over its useful life is known as depreciation.

Here’s the information you need to calculate depreciation:

Useful life of the asset: This information is available in tables, based on the type of asset. You will probably need an accountant to tell you the useful life of a specific asset.

Minus the salvage value: of the asset at the end of its useful life. Like the useful life, the salvage value is determined by a table.

Divided by the cost of the asset: this includes all costs for acquiring the asset, like transportation, set-up, and training.

This will result in the book value of the asset.

For example, the annual depreciation on an equipment with a useful life of 20 years, a salvage value of $2000 and a cost of $100,000 is $4,900 (($100,000-$2,000)/20).

The asset must be placed in service (set up and used) in the first year that depreciation is calculated, for accounting and tax purposes.

For assets purchased in the middle of the year, the annual depreciation expense is divided by the number of months in that year since the purchase.

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