Hi, I understand residential properties are usually deemed to have an effective life of 40 years, and if we use the diminishing value (DV) method for calculating depreciation, the depreciation in the n-th year is asset value * 200%/effective life = asset value * 5%. So depreciation in the n-th year is INITIAL asset value * 0.95^{n-1} * 0.05. And the sum of the depreciation in the 40 years is \sum_{k=0}^39 0.95^k * 0.05 = 1 - 0.95^40 ~ 0.87 times of INITIAL asset value. So not the entire initial asset value is depreciated. By contrast if you use the prime cost (straight line) method, you depreciate by 2.5% of INITIAL asset value every year, so everything is depreciated after 40 years.
I understand even if depreciation is incomplete under DV method, it still has the advantage that you are front loading depreciation (which is good because of inflation). But just wanted to check if my understanding is correct that DV method doesn't lead to complete depreciation after 40 years?
Thanks a lot!
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