Methods to calculate Property Depreciation | Building Costing and Estimation

Depreciation is the gradual exhaustion of the usefulness of a property. This may be defined as the decrease or loss in the value of a property due to structural deterioration, life wear and tear, decay and obsolescence.

Methods of Depreciation
Methods of Depreciation

Four Methods for calculating depreciation

  1. Straight line Method
  2. Constant percentage method
  3. Sinking Fund Method
  4. Quantity Survey Method

Straight Line Method

In this method, it is assumed that the property losses its value by the same amount every year. A fixed amount of the original cost is deducted every year, so that at the end of the utility period, only the scrap value is left.

Annual Depreciation, D = (original cost of the asset – Scrap Value)/life in years

For example, a vehicle that depreciates over 5 years, is purchased at a cost of US$17,000, and will have a salvage value of US$2000, will depreciate at US$3,000 per year: ($17,000 ? $2,000)/ 5 years = $3,000 annual straight-line depreciation expense. In other words, it is the depreciable cost of the asset divided by the number of years of its useful life.

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