How to Calculate Average Life Depreciation

The average life depreciation of an asset is the asset's cost basis divided by the annual depreciation expense for the asset. The average life depreciation is also known as the useful life for the asset and represents the length of time a business will depreciate the asset for accounting purposes.

Instructions

1. Determine the gross investment cost of the asset. This is the acquisition cost and includes the actual cost of the asset and any direct costs related to acquiring the asset, such as transportation or storage expenses. For example, assume the asset cost $10,000.

2. Determine the yearly depreciable expense for the asset. This is the actual depreciation cost associated with the asset. For example, assume the yearly depreciable expense for the asset is $500.

3. Divide the asset cost by the yearly depreciable expense. Continuing the same example, $10,000 / $500 = 20 years. This figure represents the average depreciable life for the asset.

References

• "Principles of Finance"; Scott Besley and Eugene Brigham; 2008
• University of Illinois at Chicago: Average Depreciable Life