Many assets like machinery and equipment have a limited lifespan, and even if that lifespan is many years, the asset will eventually reach the end of the line. Over the course of a machine's lifespan, it gradually decreases in value and approaches its bottom end value as it becomes worn out or outdated. The percentage of the machine that is worn out each year is referred to as depreciation. You can calculate this value yourself with a few pieces of information about the machine and quickly identify how much it has depreciated over the course of the year or its entire life.
Determine the cost of acquisition of the machine. This figure can be determined by adding the original purchase price, transportation costs, sales tax, commissions, title fees, installation fees and preparation fees together.
Video of the Day
Determine the estimated life of the machine. This is the number of years that you expect the machine to last or the amount of output you expect from the machine in hours, miles or units produced.
Determine the machine's residual value. This is an estimate of the dollar amount that the machine will sell for at the end of its operational lifespan.
Subtract the residual value of the machine from the previous step from the acquisition cost of the machine that you calculated in the first step to calculate the depreciable base. The depreciable base is the full amount that the machine can depreciate over the course of its life.
Divide the depreciable base by the number of years in the expected lifespan of the machine to calculate each year's depreciation.
Multiply the yearly depreciation value that you calculated in the previous step by the number of years the machine has been used. This will give you the total depreciation on the machine to date.