How do I find depreciation does anyone know the formula thanks
i searched it on google and this is what i found:
V=P(1-R)^n
im not sure about it but that's what it said..you can try searching it:)
y912f's formula is certainly one form of depreciation. The formula is really a simple decay function, where, starting at value P, the value of something goes down by R% per time period.
There are many ways to calculate "depreciation" depending on the context and purpose. In what context do you need to determine depreciation.
Depreciation refers to the method used to allocate the cost of an asset over its useful life. There are several formulas you can use to calculate depreciation, depending on the accounting method you employ. I will explain the two most commonly used methods: straight-line depreciation and declining balance depreciation.
1. Straight-line depreciation formula:
The straight-line depreciation method evenly allocates the cost of an asset over its useful life. To calculate it, you need three pieces of information:
- Initial Cost (IC): The original purchase cost of the asset.
- Salvage Value (SV): The estimated value of the asset at the end of its useful life.
- Useful Life (UL): The expected number of years the asset will be in service.
The formula for straight-line depreciation is:
Depreciation Expense = (IC - SV) / UL
Let's say you have an asset with an initial cost of $10,000, a salvage value of $2,000, and a useful life of 5 years. Substituting these values into the formula, we get:
Depreciation Expense = ($10,000 - $2,000) / 5
Depreciation Expense = $8,000 / 5
Depreciation Expense = $1,600 per year
Therefore, the annual depreciation expense for this asset is $1,600.
2. Declining balance depreciation formula:
The declining balance method starts with a higher depreciation expense that gradually decreases over time. The most common declining balance method is the double-declining balance. Here's how you can calculate it:
- Initial Cost (IC): The original purchase cost of the asset.
- Salvage Value (SV): The estimated value of the asset at the end of its useful life.
- Useful Life (UL): The expected number of years the asset will be in service.
- Depreciation Rate (DR): The rate at which the asset's value depreciates each year (expressed as a percentage).
The formula for declining balance depreciation is:
Depreciation Expense = (IC - Accumulated Depreciation) * DR
In each period, the accumulated depreciation increases, reducing the depreciable base value. The annual depreciation expense is calculated by multiplying the remaining depreciable base by the depreciation rate.
For example, let's assume an asset has an initial cost of $10,000, a salvage value of $2,000, a useful life of 5 years, and a depreciation rate of 40% (double-declining). Here's how you can calculate the depreciation expense:
Year 1:
Depreciation Expense = ($10,000 - $0) * 40%
Depreciation Expense = $4,000
Year 2:
Depreciation Expense = ($10,000 - $4,000) * 40%
Depreciation Expense = $2,400
Year 3:
Depreciation Expense = ($10,000 - $6,400) * 40%
Depreciation Expense = $1,440
And so on, until the accumulated depreciation equals the initial cost or the asset reaches its salvage value.
Remember, these are just two of the methods used to calculate depreciation. There are other methods like units-of-production depreciation and sum-of-the-years' digits depreciation, which are more appropriate for certain situations.