What Is the Rate of Depreciation?

In finance it is important to understand what a rate of depreciation is. The rate of depreciation will affect the value of goods and properties owned by a business and can influence the amount of corporate tax that a business must pay.

Definition

A rate of depreciation is the percent by which an asset loses value on an annual basis. A variety of different methods exist to calculate depreciation and, therefore, there are a variety of means by which to ascertain the rate of depreciation.

Types

Depreciation can be measured either by time or by use. For example, you might calculate the depreciation based on how many hours that you run a machine or how many years you expect it to last.

Calculating Rate of Depreciation

To calculate a rate of depreciation using the straight line method, simply divide the value of the asset by its life expectancy in years. This will give you the dollar amount of annual depreciation. Divide this figure by the total value of the asset and multiply by 100. This will give you the annual rate of depreciation.

References

• Accounting Study Guide: Depreciation Methods