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What Is Depreciation And How Do You Calculate It

Depreciation is the gradual decrease in the value of an asset over time due to wear and tear, obsolescence, or other factors.

Why is depreciation important?

Depreciation is important for accurately reflecting the value of a company's assets over time, influencing financial statements, tax calculations, and investment decisions.

An easy way to understand depreciation is:

To think of it as the gradual decrease in value of an item over time, like how a car is worth less after a few years of use.

How Do You Calculate Depreciation

Depreciation is calculated using methods like straight-line (equal annual deductions), declining balance (higher initial deductions), or units of production (based on usage).

Straight-line formula: Annual Depreciation = (Cost - Salvage Value) ÷ Useful Life

Handling depreciation effectively allowed us to manage our tax liabilities and reinvest in our core operations. By understanding the depreciation of our advanced aesthetic equipment, we optimized our tax benefits and planned for future investments, ensuring continuous service excellence.

Frequently Asked Questions

What is depreciation and how is it calculated?

What are the different methods of depreciation?

How does depreciation affect business taxes?

Why do assets depreciate over time?

Can depreciation be reversed?

What is the impact of depreciation on financial statements?

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