Have you ever noticed how a brand-new car loses value the minute you drive it off the lot? That’s depreciation—when something loses value over time. And whether you’re managing business equipment or just curious how your laptop’s value changes, learning how to calculate depreciation is super helpful!
Let’s make it easy to understand, step by step. 😊
Table of Contents
🙋 What Is Depreciation?
Depreciation is how we spread out the cost of an item over its useful life. Instead of recording one big expense when you buy something, you “depreciate” it a little bit each year.
Why? It helps businesses track the real value of their stuff and match expenses with income over time.
✏️ The Most Common Way: Straight-Line Depreciation
This is the simplest and most popular method. You use the same amount of depreciation every year.
Here’s the formula:
Depreciation = (Cost – Salvage Value) ÷ Useful Life
- Cost = What you paid for the item
- Salvage value = What it’ll be worth at the end
- Useful life = How long you’ll use it (in years)
🧮 Example: A Laptop
Let’s say you buy a laptop for $1,000. You expect to use it for 5 years, and at the end, you think you could sell it for $100.
Plug it into the formula:
Depreciation = (1,000 – 100) ÷ 5 = $180 per year
So each year, your laptop “loses” $180 in value.
⚙️ Depreciation Calculator
Enter the Cost, Salvage Value and Useful life. The tool will provide the depreciation
📉 Why Depreciation Matters
- Helps track the real value of assets 🧾
- Makes financial reports more accurate 💼
- Affects taxes and business planning 📊
Even if you’re not running a business, it’s good to understand how your car, electronics, or equipment are losing value over time.
🧾 Quick Recap
- Depreciation = (Cost – Salvage Value) ÷ Useful Life
- Straight-line depreciation spreads the cost evenly over the years
- It’s super useful for budgeting, taxes, and business planning