According to the fixed instalment method or cost price method,
a fixed amount of depreciation is written off annually (therefore the amount of
depreciation will be same every year.) It is calculated according to the life
span of a fixed asset. If it is estimated that a fixed asset's life span is 5
years, the cost price of the asset will be written off over a period of 5 years.
The depreciation can be calculated by dividing the cost price by 5 or 20% per
annum.

The following worksheet is used to illustrate how to calculate the depreciation on a delivery van:

The following worksheet is used to illustrate how to calculate the depreciation on a delivery van:

The depreciation is calculated on the cost price less the trade in or scrap value at the end of the life span of the delivery van. For the first year, calculate the depreciation on the cost price of R(£) 15 500 less the trade in or scrap value of R(£) 500. The depreciation will therefore be calculated as 20% of R(£) 15 000 which is R(£) 3 000 per annum. This amount of R(£) 3 000 will be depreciated in 5 equal instalments for the years during the life span of the delivery van. After the end of the 5

^{th}year, the book value will be R(£) 500, which is the trade in or scrap value of the vehicle. Over the life span of the vehicle, the depreciation will total to R(£) 15 000.