## Methods to calculate Property Depreciation | Building Costing and Estimation

Depreciation is the gradual exhaustion of the usefulness of a property. This may be defined as the decrease or loss in the value of a property due to structural deterioration, life wear and tear, decay and obsolescence.

Methods of Depreciation

#### Four Methods for calculating depreciation

1. Straight line Method
2. Constant percentage method
3. Sinking Fund Method
4. Quantity Survey Method

#### Straight Line Method

In this method, it is assumed that the property losses its value by the same amount every year. A fixed amount of the original cost is deducted every year, so that at the end of the utility period, only the scrap value is left.

#### Annual Depreciation, D = (original cost of the asset – Scrap Value)/life in years

For example, a vehicle that depreciates over 5 years, is purchased at a cost of US\$17,000, and will have a salvage value of US\$2000, will depreciate at US\$3,000 per year: (\$17,000 ? \$2,000)/ 5 years = \$3,000 annual straight-line depreciation expense. In other words, it is the depreciable cost of the asset divided by the number of years of its useful life.

#### Constant Percentage Method or Declining balance Method

In this method, it is assumed that the property will lose its value by a constant percentage of its value at the beginning of every year.

#### Sinking Fund Method

In this method, the depreciation of a property is assumed to be equal to the annual sinking fund plus the interest on the fund for that year, which is supposed to be invested on interest bearing investment. If A is the annual sinking fund and b, c, d, etc. represent interest on the sinking fund for subsequent years and C = total original cost, then –

Sinking Fund Method

#### Quantity Survey Method

In this method, the property is studied in detail and loss in value due to life, wear and tear, decay, obsolescence etc, worked out. Each and every step is based is based on some logical grounds without any fixed percentage of the cost of the property. Only experimental valuer can work out the amount of depreciation and present value of a property by this method.

1. #1 by Senthil on June 28, 2012 - 11:15 am

Plz calculate easy method for valuation building cost

2. #2 by Maykal Charlz Atta-Darkua on March 12, 2011 - 5:44 am

I still do not understand what is scrap value.

3. #3 by kailash on March 11, 2011 - 11:04 pm

depreciation of PCC Slabs

4. #4 by rotary feeder on August 24, 2010 - 8:22 am

Thanks. It’s been many years since I’ve studied economics, and this was a good refresher course.