How is the percentage of Depreciation calculated?

The calculation of depreciation percentage involves understanding the relationship between various appraisal concepts. The correct method to determine the percentage of depreciation uses Effective Age (EA) and Total Economic Life (TEL).

When you divide the Effective Age by the Total Economic Life, you obtain the proportion of the asset's life that has already expired. This ratio reflects how much value has been consumed over time, effectively quantifying the depreciation the asset has experienced based on its current operational age compared to its expected lifespan.

In other words, the percentage of depreciation expresses how much of the asset's useful life has already been utilized, importantly indicating the value decrease as the asset ages. This understanding is vital for appraisers and stakeholders in accurately assessing an asset's current value and making informed decisions regarding maintenance, replacement, or investment.