How is depreciation calculated for the purpose of indemnity?

Depreciation for the purpose of indemnity is typically calculated by dividing the age of the item by its estimated useful life. This method allows for determining how much value an item has lost due to its age and use. As items get older, their value decreases, and understanding this depreciation is crucial for insurance purposes, especially when assessing claims. Indemnity aims to restore the insured to their financial position prior to the loss, so accurately calculating depreciation ensures that the insured is compensated fairly based on the current value of the item considering its wear and tear over time.

The other methods mentioned do not effectively reflect the systematic approach of calculating depreciation. For example, simply subtracting the initial purchase price from the current market value doesn't account for the time factor and the specific useful life of the item. Estimating future costs of repairs is more concerned with potential future expenses rather than depreciation. Lastly, considering total expenses associated with the item does not directly relate to how value diminishes over time. Thus, the method of dividing the age of the item by its useful life provides a clear, structured approach to understanding and calculating depreciation for indemnity purposes.