It has been assumed so far that an asset has no value at the end of its life. This is often not the case. When an asset has a scrap or terminal value, it is normal to depreciate the asset using a percentage of its net cost (historic cost less scrap value) for every year of its useful life.
A machine is bought for $1,000,000. It has a life of 10 years, when it will be worth $50,000 as scrap. It is depreciated at 10% per annum.
Cost = $1,000,000
Scrap value = $50,000
Net cost = $950,000 Depreciation = $95,000 per annum.
A car is purchased for the Managing Director for $65,000. It has a life of 4 years, when the car will have a resale value of $15,000. Depreciation rate = 25%
Cost = $65,000
Resale value = $15,000
Net cost = $50,000
Depreciation = $12,500 per annum