The formula for calculating annual depreciation on an asset is:the useful life of the asset, Less the salvage value of the asset at the end of its useful life, Divided by the cost of the asset. There 2 different ways to calculate depreciation. The method described above is called "straight-line" depreciation. Here are the other two common ways to calculate depreciation:Double Declining
. Balance:-This method includes an "accelerator," so the asset depreciates more in the beginning of its useful life. This depreciation method is used with cars, for example. You know that a new car depreciates more than an older one. Sum of the Years' Digits:- in this method, the number of years in the useful life are summed. For example, if an asset had a useful life of 6 years, the digits would be added: 6+5+4+3+2+1=21. Then annual depreciation would be determined as follows: Year 1 = 6/21 = 28.6% times the cost. Depreciation is necessary as all assets have wear and tear.
