How is depreciation calculated using the Age-Life Method?

The Age-Life Method of calculating depreciation is widely used because it provides a straightforward way to estimate the depreciation of an asset based on its age compared to its expected lifespan. In this method, depreciation is determined by assessing the effective age of the property relative to its total economic life.

Using the effective age divided by total economic life allows appraisers to understand how much of the property’s usefulness has been utilized. The effective age represents how old the property feels and functions in comparison to its total economic life, which is the period the property is expected to remain useful. This ratio highlights the relationship between how long the property has been in use and how much longer it can be expected to last. The resulting calculation provides a percentage that indicates the proportion of the economic life that has been consumed, which is essential in calculating depreciation effectively. By utilizing this method, appraisers can accurately reflect the value loss of a property due to age and wear and tear over time.