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. Depreciation can be calculated annually or monthly, describing the timing of depreciation calculation.

2. How Does the Calculator Work?

The calculator uses the straight-line depreciation formula:

Where:

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

Explanation: This method spreads the cost evenly over the asset's useful life, resulting in equal depreciation amounts each period.

3. Importance of Depreciation Calculation

Details: Accurate depreciation calculation is crucial for financial reporting, tax purposes, and business decision making. It affects net income, asset valuation, and capital budgeting.

4. Using the Calculator

Tips: Enter the asset cost in dollars, estimated salvage value, useful life in years, and select whether you want annual or monthly depreciation calculation.

5. Frequently Asked Questions (FAQ)

Q1: When is depreciation calculated?
A: Depreciation is typically calculated at the end of each accounting period (monthly, quarterly, or annually).

Q2: What's the difference between annual and monthly depreciation?
A: Annual depreciation is the total for the year, while monthly is 1/12th of the annual amount. Some businesses prefer monthly for more accurate monthly financial statements.

Q3: What if my asset has no salvage value?
A: Simply enter 0 as the salvage value. The entire cost will be depreciated over the useful life.

Q4: Are there other depreciation methods?
A: Yes, methods like declining balance and units of production exist, but this calculator uses the straight-line method for simplicity.

Q5: How do I determine useful life?
A: Useful life depends on asset type and usage. Tax authorities often provide guidelines for common asset classes.