The annual depreciation of an asset is independent of:-

Depreciation represents the loss in value of an asset over time.

The basic formula for annual depreciation:

Annual Depreciation $= \frac{\text{Original Cost} - \text{Scrap Value}}{\text{Useful Life}}$

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Consider useful life:

For a machine costing $10,000 with scrap value$0:

• With useful life of 5 years: Annual Depreciation $= \frac{10,000}{5} = 2,000$
• With useful life of 10 years: Annual Depreciation $= \frac{10,000}{10} = 1,000$

Useful life affects depreciation.

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Consider original cost:

For an asset with useful life 5 years and scrap value $0:

• With cost of $5,000: Annual Depreciation$= \frac{5,000}{5} = 1,000$
• With cost of $10,000: Annual Depreciation$= \frac{10,000}{5} = 2,000$

Original cost affects depreciation.

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Consider profit gained:

A taxi purchased for $20,000 with useful life 5 years and scrap value$0:

Annual Depreciation $= \frac{20,000}{5} = 4,000$

Whether the taxi earns $50,000 profit per year or$5,000 profit per year, the annual depreciation remains $4,000.

Depreciation depends on the asset's value reduction over time, not on the profit generated from using the asset.

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Consider scrap value:

For equipment costing $10,000 with useful life 5 years:

• With scrap value $0: Annual Depreciation$= \frac{10,000 - 0}{5} = 2,000$
• With scrap value $2,000: Annual Depreciation$= \frac{10,000 - 2,000}{5} = 1,600$

Scrap value affects depreciation.

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Annual depreciation is independent of profit gained from the asset.