Three Depreciation Methods Explained Simply

Three Depreciation Methods Explained Simply 📉

DEPRECIATION 🚗 🤖 🏭

An accounting method that spreads out the cost of a tangible asset over its useful life. It represents the systematic reduction in the value of an asset due to wear and tear, obsolescence, or other factors. Depreciation is the process of allocating the cost of a tangible asset over its useful life. There are several methods to calculate depreciation, but three common ones are straight-line depreciation, double declining balance depreciation, and units of production depreciation. Depreciation happens to TANGIBLE Assets (you CAN touch them) Examples:→Car 🚘→Equipment 🤖→Buildings 🏭

3 DEPRECIATION METHODS

1️⃣ STRAIGHT – LINE

The most common and easiest method to calculate depreciation. To use this method of depreciation, you need to divide the cost of an asset by the useful life of an asset (in years). 🔎 FORMULA: Cost / Useful Life

2️⃣ DECLINING BALANCE

Used to calculate large depreciation expenses or assets that quickly lose value. Multiply the opening book value by the depreciation rate. 🔎 FORMULA: Opening book value x (100% / Useful Life of asset)

3️⃣ SUM OF THE YEARS DIGITS

An accelerated depreciation method makes the expense higher in the early years and lower in the latter years. Multiply the cost of an asset by its useful life over the sum of the years digits. 🔎 FORMULA:  Cots x ( Useful life / Sum of the Years digits)

Hope the information will assist you in your Professional endeavors. For query or help, contact: singh@carajput.com or call at 9555555480

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