How to Calculate Depreciation Rate?

Calculation of Depreciation Rate for Fixed Assets

The reduction in value of an asset due to normal usage, wear and tear, new technology or unfavorable market conditions is called depreciation. Assets such as plant and machinery, buildings, vehicles and other assets which are expected to last more than one year but not for infinity are subject to depreciation.

There are various methods to calculate depreciation, one of the most commonly used method is the straight line method, keeping this method in mind the formula to calculate depreciation rate (annual) is as follows:

Annual Depreciation rate = (Cost of Asset – Net Scrap Value)/Useful Life

 

Example

Cost of machine = 10,000

Scrap value of machine = 1,000

Machine’s estimated useful life = 5 years

Annual Depreciation = (Cost of Asset – Net Scrap Value)/Useful Life

Annual Depreciation = (10,000-1,000)/5

= 9,000/5

= 1,800/year (Annual Depreciation)

(Annual Depreciation in %ge) 1,800/10,000 = 18%

 

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