There are several examples of assets that would depreciate over time, such as vehicles, furniture, mechanical equipment and computers. This invisible, intangible wear and tear in a financial sense is always happening with assets even without our realizing it sometimes. Depreciation calculator helps in this case.
I was once told by an uncle that buying a new car doesn’t make any sense since the car will lose value as soon as it rolls out of a showroom. I laughed at him and considered it an absurd notion until I found out he wasn’t exaggerating our wrong. That’s why we need a depreciation calculator to be close at hand; to find out how much of these assets have been used up over an accounting period (months, quarters, years, etc).
The depreciation calculator helps one to easily find out how much has been lost by way of depreciation and then put it down as a depreciation expense in the Income statement of our accounting books. If I were to try and sum up a description of depreciation easily, I’d simply say that it is a transfer of a portion of the cost of owning an asset from the balance sheet to the income sheet over the course of an asset’s sheet. So just how would you calculate depreciation if you weren’t to use a depreciation calculator?
This can be done by following two fundamental accounting principles. The first of this is the cost principle. This dictates that the depreciation be based on the original cost of buying the asset in question as opposed to some fuzzy value you’ve pulled out of a hat. Then there’s the matching principle.
This requires that the cost so derived be allocated to depreciation expense over the course of an asset’s life. That divides the cost of an asset with the cost of it reported on each income statement that mentions the asset. By delegating a portion of the asset’s cost to the income statement, the accountant is mirroring the cost of the asset with a period within which it has been used. Please not that land cannot be depreciated since it is assumed to have an infinite lifespan.
If all of this sounds like rocket science to you or if you’d rather not do it, then a depreciation calculator could be just what you are looking for. It’ll help you find out just how an asset, such as a car or a piece of machinery, has lost without you having to do all of the math about it. You input the data in one field and it ends up returning the value of the item or the quantum of reduction in its value.
A depreciation calculator can also be used to ascertain the future value of any item. Remember though that the results will be only as good as the information you put in. Some will also consider a set period as the useful life of an asset, such as 10 years for a car or 3 years for a laptop.