1) Depreciation occurs due to wear and tear on assets from use over time and assets becoming obsolete when newer products are introduced. 2) There are two main methods for calculating depreciation - the straight line method and reducing balance method. The straight line method writes off the cost of an asset in equal amounts over its expected life. 3) The reducing balance method depreciates the value of an asset by a predetermined percentage each year, resulting in higher depreciation in earlier years when the asset value is higher.