How do you calculate the percentage of depreciation?

The correct method for calculating the percentage of depreciation is by taking the depreciation amount and dividing it by the cost new of the property or asset. This formula expresses how much value has been lost in relation to what the asset was worth when it was new, giving a clear percentage of depreciation that reflects the asset’s current value compared to its original value.

Using the cost new in this calculation is essential as it provides a reference point that reflects the asset's initial worth. This metric is often used in property appraisal, accounting, and financial reporting to evaluate how much value an asset is losing over time due to factors such as wear and tear, market conditions, or obsolescence. By determining the percentage of depreciation in this manner, one can gain insights into economic lifespan and investment performance.

The other methods listed do not provide an accurate measure of the percentage of depreciation in the manner generally accepted in appraisal practices. For example, dividing depreciation by original cost does not capture the full value at the time of purchase if improvements or inflation have altered the cost basis. Similarly, taking cost new divided by total depreciation does not yield a meaningful rate of depreciation, as it does not represent the loss relative to the new value. Lastly, total depreciation divided by effective age does not