The following are the four more common depreciation methods used in the business. Straight Line, Unit of Production, sum of the year digit and declining balance. but first let discuss the straight line methods.
Straight Line Methods
The straight line method of determining depreciation provide for equal amounts of periodic expense over the estimate useful life of the asset. This methods relates depreciation directly to the passage of time. Depreciable cost of the asset is determined by subtracting the estimated salvage value from the original cost of the asset. The useful life is then divide into the depreciable cost. The resulting amount is an annual depreciation expense that is constant over the life of the asset.
Original Cost - Salvage Value
Straight Line method ______________________
Estimated useful life
Example: Computer equipment for 90,000.00
Shipping charges were 1,250.00
Installation of program 3,750.00
95,000.00
The equipment expected to last four year and has a salvage value of 15,000.00
95,000.00 - 15,000.000
Annual Depreciation _________________________ = 20, 000.00
4
No.Year Annual Depreciation Accumulated Dep. Book Value
95,000.00 - original cost
1 20,000.00 20,000.00 75,000.00
2 20,000.00 40,000.00 55,000.00
3 20,000.00 60,000.00 35,000.00
4 20,000.00 80,000.00 15,000.00 - salvage value
Note the initial book value of equipment is 95,000.00 is also the original cost of the asset and the final book value of 15,000.00 is equal to the salvage value of the asset. As the computer is used, depreciation increase and the book value is decrease. at the of its useful life of four years, the computer is said to be fully depreciated.
No comments:
Post a Comment