Calculate Your Furniture Depreciation Rate
Depreciation means non-cash expense by financial analysts. It happens because it does not result in a real cash outlay. A simple example is that you can imagine the depreciation of a brown or black spot on a potato. After you chop it, the black or brown spots will appear.
Experts and accountants found it will be useful for people to track and calculate the effect of these browning spots or comparing it for our furniture case as depreciation. Knowing the depreciation and accounting will give two benefits for people. The first one is by accounting your furniture depreciation rate you may know the original cost of your furniture. The second benefit is you will know the usefulness of your furniture.
Instruction to Calculate Your Furniture Depreciation Rate
There are 4 steps to calculate your furniture depreciation rate. The first step is by reviewing the calculation of depreciation. The calculation is found by dividing the cost of the asset by the useful life. This is the simplest way of calculating the furniture depreciation rate that is commonly used. It is referred to as the straight line depreciation method. Remember the pattern as we will use it for the next three steps later.
The second step of calculating the furniture depreciation rate is by determining the cost of the asset. This is the cost of the furniture; you may verify it with the sales receipt. For example, buying bedroom furniture is $40,000. It means, you buy the furniture initially for 40,000. You furniture cost may be higher or lower than this. It is only an example to make us easier on explaining the instructions for you.
The next thing is Determine the useful life of the furniture. You should make your own estimation based on past performance or ask the sales associate for estimation. Remember that this thing also depends on your furniture quality. We will use for example that the furniture is used for 8 years.
The last thing to do is calculate the annual furniture depreciation rate. You have to divide the cost of the furniture ($40,000) by the useful life (8 years). The calculation will be $40,000/8 0r $2,000. This is the rate you may write annually in order to fully depreciate your furniture over the next 8 years.
Actually there are some other ways to calculate furniture depreciation rate, but, this is the very common way and the simplest way people usually do. You may use the results of the calculation to determine the value of your furniture when you want to sell it so you will have the exact price and furniture depreciation rate. The furniture depreciation rate may also be used if you want to make sure when you buy second-hand or used furniture so you will not pay to high of a price. The price will be reasonable based on the useful life of the furniture and initial costs of the furniture. If you meet or face any difficulties you may ask people around you or sales, they are experts at calculating the furniture depreciation rate.