1. What is Depreciation?

Depreciation is the systematic allocation of the cost of a tangible asset over its useful life. It represents how much of an asset's value has been used up and is important for both tax and accounting purposes.

2. How Does the Calculator Work?

The calculator uses the straight-line depreciation formula:

Where:

• \( \text{Cost} \) — Original purchase price of the asset
• \( \text{Salvage Value} \) — Estimated residual value at end of useful life
• \( \text{Useful Life} \) — Expected service life in years

Explanation: This straight-line method spreads the cost evenly over the asset's useful life, subtracting any expected salvage value.

3. Importance of Depreciation Calculation

Details: Accurate depreciation calculation is crucial for financial reporting, tax deductions, and understanding the true cost of asset ownership over time.

4. Using the Calculator

Tips: Enter the original cost of the asset, its estimated salvage value at end of life, and the expected useful life in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between straight-line and other depreciation methods?
A: Straight-line is simplest, while methods like declining balance accelerate depreciation in early years.

Q2: How do I determine salvage value?
A: Estimate what the asset could be sold for at end of its useful life. If unknown, many use zero.

Q3: What's considered a "useful life" for common assets?
A: Computers (3-5 years), vehicles (5-10 years), buildings (20-40 years) - consult tax guidelines.

Q4: Can I change depreciation methods later?
A: Generally no for tax purposes, but possible for accounting with proper justification.

Q5: Does land depreciate?
A: No, land is considered to have an indefinite useful life and is not depreciated.