Annual depreciation is a financial law term that refers to the annual loss to a property caused due to regular wear and tear. It is an important component of business accounting. Annual depreciation calculations quantify the decline in book value of an asset each year.
To calculate annual depreciation of a product it is necessary that one should know: the initial cost of those assets; number of years they will retain some value for the business; and the value, if any, they will have at the end of their useful life.
Annual depreciation was the amount per annum that was reasonably necessary to compensate for the wearing out and any necessary replacements and retirements of a property. [United Gas Public Service Co. v. Texas, 303 U.S. 123, 134 (U.S. 1938)].