(Purchase Price of Asset - Approximate Salvage Value) Estimated Useful
Life of Asset
Example: You buy a new computer for your business costing approximately
$5,000. You expect a salvage value of $200 selling parts when you dispose of it.
Accounting rules allow a maximum useful life of five years for computers. In the
past, your business has upgraded its hardware every three years, so you think
this is a more realistic estimate of useful life, since you are apt to dispose
of the computer at that time. Using that information, you would plug it into the
($5,000 purchase price - $200 approximate salvage value) 3 years estimated
The answer, $1,600, is the depreciation charges your business would take
annually if you were using the straight line method.