The first is called "Straight Line Depreciation".

IBM 486 (1989 - 2007)

The formula is very straight forward. The formula is ((Cost - Salvage Value) / Life Of The System).

An example of this is that you have a $1500 rig with a salvage value of $375, and you've had it for two years.

Then you would calculate like this:

(($1500 - $375) / 2) = $562.5

Year 1 = $1500 - $562.5 = $937.5

To calculate the expense for year two you multiply the depreciation rate by the month of sale. If the sale month is October, that would be 10/12.

Year 2 = $562.5 * (10/12) = $468.75

$937.5 - $468.75 = $468.75

The second method is called "Declining balance depreciation".

Radio Shack Tandy Model TRS-80 (1977 - 1988)

For this method the formula is as follows:

Depreciation = Depreciation Rate x Book Value Of Asset

Depreciation Rate = Accelerator x Straight Line Rate

For this method say you build a PC worth $2000 and there's a 5 year shelf life with a salvage value of $525.

Straight Line Depreciation Rate = 1 / 5 = 0.20

Declining Balance = 0.20 x 2 = 0.40

Depreciation = 0.40 x $2000 = $800

Depreciation Rate = $2000 - $800 = $1200

With this method you can expect your rig to be worth $1200. The first method is more accurate, the second method is easier to compute and will give you a faster quote.

How to calculate the salvage value

Apple Power PC Performa 600 (1992 - 1996)

This directly ties into the first formula. It's also pretty simple if you know basic math. To calculate the salvage value:

S = P (1 - i) ^ y

P = Original Price

i = Depreciation Rate

y = Age in years

S = Salvage value

What's the salvage value of a system if it's originally priced at $2000, it depreciates at 35% annually, and it's owned for three years?

S = $2000 (1 - .35) ^ 3 = $549.25

So the salvage value of a $2000 rig with a three year life would be $549.25. But for accounting purposes, it would be rounded to the nearest whole dollar so $549.

Sources:

Antec SX-385 II (2002 - 2006)

- http://www.slideshare.net/matrixlab/salvage-value-calcu...

- http://accountingexplained.com/financial/non-current-as...

- http://accountingexplained.com/financial/non-current-as...