Calculate a Straight-Line Depreciation
Depreciation refers to the loss of value of an item or piece of property over time due to use or aging. Being able to accurately calculate depreciation helps to make your financial records more accurate. For example, if you bought a $10,000 computer system for your company that would last 10 years, and you did not depreciate the cost of the computer over the life of the computer, your company's financial statements would reflect a $10,000 loss in year one and no expenses in the remaining nine years. To calculate depreciate using the straight-line method, you need to know the purchase price, estimated value of the item at the end of use, if any, and the number of years the item will last.
Instructions
1. Determine the value of the item at the time you purchased it. For example, a new truck for your landscaping company might cost $23,000.
2. Estimate how long you will use the item. For example, a truck for your landscaping business might last 10 years.
3. Estimate the value, if any, at the time you stop using the item. For example, you might anticipate being able to sell the truck for $3,000 after 10 years.
4. Subtract the final value from step three from the initial value from step 1. For example, subtract $3,000 from $23,000 to find the total loss of value equals $20,000.
5. Divide the total loss of value from step 4 by the length of time you expect to use the item to find the depreciation per year based on the straight line method. For example, divide $20,000 by 10 years to find the truck would depreciate at a rate of $2,000 per year.
Tags: from step, loss value, value from, value from step, value item, example truck