What is the formula for determining depreciation percentage?

The formula for determining depreciation percentage is derived from the relationship between effective age and total economic life. The effective age represents how old the property appears in comparison to its actual age, while total economic life is the entire lifespan of the property before it becomes obsolete.

In this context, dividing effective age by total economic life provides a proportion that reflects the percentage of the property's value that has been diminished over time. This ratio is essential for appraisers as it facilitates the calculation of depreciation by indicating how much of the property's economic life has already been consumed. A higher ratio indicates greater depreciation.

For example, if a property has an effective age of 20 years and a total economic life of 50 years, the depreciation percentage would be calculated as 20 divided by 50, resulting in a depreciation of 40%. This method helps in understanding the financial implications regarding property value and is a standard practice in the appraisal process.