|Depreciation refers to the loss in value of an item due to wear and tear over time. While there is an increase in value due to appreciation there is a decrease due to depreciation. Consequently, instead of adding the rate as is the case for appreciation we subtract the rate. Let’s look at an example.|
A laptop bought for $2,100 depreciates at a rate of 8.5% per annum. Determine
- the value of the laptop after 5 years,
- the amount of depreciation during the 5-year period.
where is the annual rate of depreciation.
STEP 2: Substitute the needed values into the formula
where is the value of the item after years and is the initial value of the item.
STEP 3: Calculate the amount of depreciation as