Simple English definitions for legal terms
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A depreciation method is a way to estimate how much an asset will wear out or become obsolete over time. This is important for calculating how much of a tax deduction can be taken each year. There are different methods, such as the straight-line method, which spreads out the cost of the asset evenly over its useful life, and the double-declining method, which takes more deductions in the earlier years. Other methods include the annuity method, the units-of-output method, and the replacement-cost method. Each method has its own formula for calculating depreciation.
A depreciation method is a formula used to estimate the decrease in value of an asset over its useful life due to wear, tear, or obsolescence. This method is useful in calculating the allowable annual tax deduction for depreciation.
These examples illustrate how different depreciation methods can be used to calculate the annual depreciation expense for an asset based on its expected useful life, salvage value, and productivity.