In this article, we’ll cover the basics of car depreciation calculator, the various methods used to calculate it, and how to use a depreciation calculator for your financial planning.
What is Depreciation?
Depreciation is the systematic allocation of the cost of an asset over its useful life. Businesses typically purchase assets like machinery, vehicles, equipment, or buildings, and over time, these assets lose value. Rather than expensing the entire cost of the asset in the year it’s purchased, depreciation spreads the expense over multiple years.
This process helps companies reduce taxable income and more accurately reflect the decline in asset value. Depreciation can also affect a company’s balance sheet, profit and loss statements, and cash flow analysis.
Key Concepts Related to Depreciation
- Depreciable Base: The original cost of the asset minus any residual (salvage) value.
- Useful Life: The period over which the asset is expected to be used, typically measured in years.
- Salvage Value: The estimated value of the asset at the end of its useful life.
- Depreciation Expense: The amount that is deducted each year to account for the asset's depreciation.