Standard Depreciation

Standard depreciation, also known as straight-line depreciation, is the simplest and most often used technique to calculate an item’s depreciated value.

Depreciation

Depreciation is an accounting term that tells you what the reduction in value is of a particular asset that is used for business purposes over its useful life. Depreciation occurs due to factors such as wear and tear, technological obsolescence and depletion.

What Depreciates?

Assets that depreciate are usually equipment such as tractors, computers, cars and industrial machinery.

Straight-Line Depreciation

Straight-line depreciation is calculated by taking the cost of the asset and subtracting it from its residual, or salvageable, value. This difference is then divided by the useful life of the asset in years. This quotient is the annual depreciation expense the company incurs every year on the asset.

Other Depreciation Methods

Other depreciation methods include the declining balance method, units of production depreciation method, group depreciation method and the composite depreciation method.

Taxes

Expenses incurred due to depreciation are eligible for tax deductions if they meet two criteria features. First of all the asset must have a useful life beyond the taxable year. It must also be susceptible to wear and tear, decay or obsolescence.

References

• Investopedia: Depreciation
• IRS: A Brief Overview of Depreciation