What is the formula used to calculate the value of depreciation?

The correct formula for calculating depreciation generally involves determining the amount by which an asset's value decreases over time, typically based on its historical cost, useful life, and residual value. One common method is to subtract the residual value from the historical cost, and then divide that figure by the useful life of the asset.

Among the available choices, the calculation typically starts with the historical cost and subtracts the residual value to find the depreciable amount. This amount is then allocated over the asset's useful life. Therefore, the correct understanding leads to recognizing that the value of depreciation itself pertains to how much of the asset's cost is being allocated in each accounting period based on its useful life.

The choice stating that depreciation is a ratio of its value to useful life misrepresents how depreciation is calculated. Instead, the focus should be on understanding how both historical costs and residual values interact in determining the depreciation expense.