Annual depreciation formula

Depreciation Calculation Steps

The basic depreciation calculation steps are noted below.

Step 1. Aggregate Assets

Determine whether several expenditures should be aggregated together for purposes of designating a fixed asset.

For example, a group of desks could be called a single fixed asset.

Step 2. Expense or Capitalize

Determine whether the purchased item (or group of items) should be recorded as a fixed asset or charged to expense.

How to calculate depreciation on fixed assets

To be a fixed asset, it should have a usage period that is longer than an accounting period, and should cost at least as much as the corporate capitalization limit.

Step 3. Determine Salvage Value

Estimate the amount of any salvage value.

If the amount is minor, it is easier from a depreciation calculation perspective to ignore salvage value.

Step 4. Determine Asset Group

Determine the asset group into which the fixed asset will be clustered.

Step 5.

Depreciation example

Determine Useful Life

Assign a useful life to the fixed asset. In many cases, a standard useful life is assigned to every asset in an asset group.

Step 6. De

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