How depreciation is calculated on fixed assets

Question

Accepted Answer

Depreciation on fixed assets is calculated based on the asset's useful life and salvage value.

Depreciation is the reduction in value of an asset over time due to wear and tear, obsolescence, or other factors.
The most common method of calculating depreciation is the straight-line method, which spreads the cost of the asset evenly over its useful life.
Other methods include the declining balance method and the sum-of-the-years'-digits method.
Depreciation expense is recorded on the income statement and accumulated depreciation is recorded on the balance sheet.
For example, if a company purchases a machine for $10,000 with a useful life of 5 years and a salvage value of $2,000, the annual depreciation expense would be $1,600 ($10,000 - $2,000 / 5).

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