Depreciation is the reduction in the value of an asset over time. There are several methods to calculate depreciation, but the most commonly used are Straight-Line Depreciation and Declining Balance Depreciation. Here are the formulas for both:

1. Straight-Line Depreciation

This method assumes that the asset loses value evenly over its useful life.

Formula: $\text{Depreciation Expense} = \frac{\text{Cost of Asset} - \text{Salvage Value}}{\text{Useful Life of Asset}}$

Where:

• Cost of Asset is the initial purchase price.
• Salvage Value is the estimated residual value of the asset at the end of its useful life.
• Useful Life is the duration over which the asset is expected to be useful.

2. Declining Balance Depreciation

This method applies a constant depreciation rate to the reducing book value of the asset each year.

Formula: $\text{Depreciation Expense} = \text{Book Value at Beginning of Year} \times \text{Depreciation Rate}$

Where:

• Book Value at Beginning of Year is the asset's value at the start of the year.
• Depreciation Rate is usually calculated as $\frac{2}{\text{Useful Life}}$ for the Double Declining Balance method.

Would you like details on how to apply these formulas, or do you have any questions?

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Here are some related questions you might consider:

1. How do you calculate the salvage value of an asset?
2. What is the difference between straight-line and accelerated depreciation methods?
3. How does depreciation affect financial statements?
4. What are the advantages of using the double declining balance method?
5. How do you account for depreciation in tax reporting?
6. Can depreciation methods vary by industry?
7. How is the useful life of an asset determined?
8. What happens if an asset's value falls below its salvage value before the end of its useful life?

Tip: When choosing a depreciation method, consider the nature of the asset's use—whether its value diminishes more rapidly in the early years or evenly over time.