Most people scare away from investing in assets because there’s a lot of talking around depreciation of assets. This talk lacks substance and clarity as the depreciation does not exist in isolation. Appreciation is equally effective too as explained in other articles. People also need guidance on how to Calculate Depreciation Of Assets (for the purposes of this article) depreciation in order to make more informed decisions when involved with ways to calculate depreciation of assets.
The formula used to calculate depreciation subtracts the asset’s salvage value from its cost to determine the amount that can be depreciated. This amount is then divided by the number of years in the asset’s useful lifespan then again divided by 12 to tell the monthly depreciation for the asset.
Here’s How to calculate depreciation of assets
Depreciation can be defined as the value of a business asset over its useful life. Before you can calculate depreciation there is a set of information you need:
Useful life of the asset: Based on the type of asset, tjis information is available in tables and you will probably need an accountant to tell you the useful life of a specific asset.
Minus the salvage value: Salvage value is the amount for which the asset can be sold at the end of its useful life. It is also determined by a table just like the useful life’s.
Divided by the cost of the asset: This includes all costs for acquiring the asset, like transportation, set-up, and training.
The result is known as the book value of the asset.
Here is an 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.