Depreciation is a commonly used accounting concept used to help accountants track the value of assets over time. This is especially important to keep track of equipment like tractors, which have varying useful lives depending on the usage and quality of the vehicle. The most common method for calculating depreciation is the straight-line method, which depreciates an equal amount every year based on two things: the original cost of the tractor and the tractor's useful life.
Determine the original cost of the tractor. This is the price you paid for the tractor.
Determine the useful life of the tractor. This depends on the manufacturer, the age of the tractor as sold and your own judgment. If the tractor is used, reduce the number of years of the useful life to compensate. For instance, if the useful life of a new tractor is 10 years, and you purchased a 5-year-old tractor, adjust the tractor useful life down by 5 years.
Divide the cost of the tractor by the useful life of the tractor. For instance, if the cost of the tractor is $50,000 and the useful life is determined to be 5 years, then the annual depreciation expense is $50,000 / 5, or $10,000.
