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Assume that you bought a car at a particular price. After three years you decide to sell it but the problem is you are not sure how much the price of the car now. The price of the car is particularly less than the amount you bought three years ago. That means the price of the car is depreciated within the last three years.
Depreciation is a method to calculate the value of an asset over its lifespan. It is the reduction in the value of an asset over time, due to elements such as wear and tear and came new and better products in the market.
There are three methods to calculate depreciation - the straight line depreciation, the declining balance depreciation, and the sum of years digits depreciation.
The formula for calculating three methods of depreciation is as follows:
1. Calculate depreciation by straight line depreciation method:
annual expense = (OC - RV) / t
end book value = OC - m * [(OC - RV) / t]
2. Calculate depreciation by declining balance depreciation method:
depreciation rate (r) = 1 - (RV / OV)(1 / t)
annual expense = [OC * (1 - r)(m - 1)] * r
end book value = OC * (1 - r)m
3. Calculate depreciation by sum-of-year's digits depreciation method:
First calculate, D = (OC - RV) / [(t + 1) * t / 2]
annual expense = D * (t - m + 1)
end book value = OC - D * [m * t - (m - 1) * m / 2]
where
- OC - Original cost of an asset
- RV - Residual value of an asset
- t - lifetime of an asset
- m - years between when the asset you were purchased and the day you want to sell it
What can you do with Depreciation Calculator?
- It helps to calculate depreciation expense and end book value of the asset.
- Users can see the accurate value of the depreciation expense, end book value and depreciation rate. And also can see the end book value in words.
- This calculator helps to share your calculations by URL.