Calculation Method Of Depriciation

Three Method of Depriciation

Straight Line Depreciation Method

The straight line depreciation method divides the cost by the life.

SL = Cost / Life

Example: A desk is purchased for $487.65. The expected life is 5 years. Calculate the annual depreciation as follows:

487.65 / 5 = 97.53

Each year for 5 years $97.53 would be expensed.

Declining Balance Depreciation Method The declining balance depreciation method uses the depreciable basis of an asset multiplied by a factor based on the life of the asset. The depreciable basis of the asset is the book value of the fixed asset -- cost less accumulated depreciation. The factor is the percentage of the asset that would be depreciated each year under straight line depreciation times the accelerator. For example, an asset with a four year life would have 25% of the cost depreciated each year. Using double declining balance or 200%, which is the most common, would mean that depreciation expense in the first year would be twice that or 50%. So to calculate the depreciation expense each year the depreciable basis would be multiplied by 50%. Example: A copy machine is purchased for $3,217.89. The expected life is 4 years. Using double declining balance the depreciation would be calculated as follows: factor = 2 * (1/4) = 0.50 Year Depreciable Basis Depreciation Calculation Depreciation Expense Accumulated Depreciation 1. 3,217.89 3,217.89 * 0.5 1,608.95 1,608.94 2. 1,608.94 1,608.94 * 0.5 804.47 2,413.41 3. 804.48 804.48 * 0.5 402.24 2,815.65 4. 402.24 402.24 * 0.5 201.12 3,016.77 Sum of the Years Digits The first step is to sum the digits or numbers starting with the life and going back to one. For example, an asset with a life of 5 would have a sum of digits as follows: 5+ 4+ 3 +2 + 1 = 15 To find the percentage for each year divide the year's digit by the sum. In the example above the percentage would be calculated as follows:  Example: A conference table is purchase for 1,467.89. The expected life is 5 years. Since this is a 5 year asset the yearly factors have been calculated above. Year 1                                          5 / 15 = 33.34% Year 2 4 / 15 = 26.67% Year 3 3 / 15 = 20 % Year 4 2 / 15 = 13.33 % Year 5 1/ 15 = 6.67% Year Depreciation Calculation Depreciation Expense 1 1,467.89 * 33.34 % 489.4 2 1,467.89 * 26.67 % 391.49 3 1,467.89 * 20 % 293.58 4 1,467.89 * 13.33 % 195.67 5 1,467.89 * 6.67 % 97.91