Depreciation Calculator

Depreciation Knowledge

Depreciation means expensing the cost of a tangible capital asset over its useful life. It allows both businesses and individuals to spread out the fall in value of their assets over time. Example: A car worth $30,000 that has been fully amortized may depreciate every year due to wear-and-tear, and must be calculated properly.

Types of Depreciation Methods

• Straight-Line Depreciation: This method allocates cost evenly over the useful life of the asset.
• Declining Balance Depreciation: Here, a constant depreciation rate is applied to an asset’s remaining book value every year.
• Units of Production Depreciation: Based on usage–that cannot work for assets like machinery as it doesn’t take wear into account.

Example of Depreciation Calculation

Some Facts about Depreciation That You Might Not Know

• Businesses can use depreciation to pay less taxes, affecting net income tax-free on their financial statements.
• Some assets appreciate over time – real estate is a good example – while others, like automobiles, depreciate.
• Another category is art and antiques which often lend themselves to appreciation in value over time. Also, there are other kinds of financial assets such as stocks or bonds that might also go up in worth. For this reason depreciation can also encourage healthy management of capital and produce an overall rise instead.

Depreciation facilitates proper choice of replacement equipment since it helps us understand the time value of money, therefore improving decisions such as when to buy and sell property and plant at best economic advantage.