How to Calculate Depreciation on Fixed Assets

Step-by-Step Guide

1. 1

   Step 1: Enter the asset's purchase price.

   For example, if you bought factory equipment for $1,000, then that's the amount that you'll use as the purchase price. , Subtract that number from the purchase price to get the depreciable cost.
   
   For example, if you bought the factory equipment mentioned above for $1,000 and determined that it would be worth only $200 at the end of its lifespan, then the depreciable cost is $1,000
   - $200 or $800. , The asset that you purchased has an expected lifespan just like anything else (your personal computer, for example, is something that you probably don't expect to use for more than a few years).
   
   You'll need to know how many years you can expect to get any use out of your new asset and then divide the depreciable cost by that number.
   
   For example, if the depreciable value of the asset is $800 and you expect it to last 5 years, then the depreciation is $800 / 5 = $160.
   
   That's the amount of depreciation for the asset that you'll enter in your accounting books every year.
2. 2

   Step 2: Subtract the salvage value from the purchase price to find the depreciable cost.The "scrap" or "salvage" value of the item represents how much it will be worth once it's outlived its usefulness.

3. 3

   Step 3: Divide the depreciable cost by the asset's lifespan to get the depreciation.

Detailed Guide

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