Types of

Depreciation
• Straight Line Method
• Declining Balance Method
• Sum of Years digit Method
• Sinking Fund Method
Straight Line Method
Here a fixed sum is charged as the depreciation
amount throughout the lifetime of an asset such
that accumulated sum at the end of life of asset
is exactly equal to the purchase value of asset.
Dt = (P-F)/N
Bt= Bt-1 –Dt
P= First cost of the asset
F= Salvage value of the asset
Bt= Book value of the asset at time period t
Bt-1= Book value of the asset at time period t-1
Book value is the price paid for a particular asset.
 A COMPANY HAS PURCHASED AN
EQUIPMENT WHOSE FIRST COST IS
RS 1,00,000 WITH AN ESTIMATED
LIFE OF 8 YEARS. THE ESTIMATED
SALVAGE VALUE OF THE EQUIPMENT
AT THE END OF LIFETIME IS 20,000.
DETERMINE THE DEPRECIATION
CHARGE AND THE BOOK VALUE AT
THE END OF VARIOUS YEARS USING
STRAIGHT LINE METHOD.
P= 1,00,000, F= 20,000, N=8 YEARS
Dt= P-F/N= 10,000
B1= B0-D1 = 1,00,000- 10,000 = 90,000
B0= Cost of the asset
End of Years Depreciation Book Value
0 1,00,000
1 10,000 90,000
2 10,000 80,000
3 - -
4 - -
5 - -
6 - -
7 - -
8 - -
End of Years Depreciation Book Value

0 1,00,000

1 10,000 90,000

2 10,000 80,000

3 10,000 70,000

4 10,000 60,000

5 10,000 50,000

6 10,000 40,000

7 10,000 30,000

8 10,000 20,000
Declining Balance Method of Depreciation
A constant percentage of the value of the
previous period of the asset will be charged as
the depreciation amount for the current period.

K= Fixed Percentage
Bt= Book value of the asset at time period t
Bt-1= Book value of the asset at time period t-1
Dt= K * Bt-1
Bt= Bt-1 –Dt
A COMPANY HAS PURCHASED AN
EQUIPMENT WHOSE FIRST COST IS
RS 1,00,000 WITH AN ESTIMATED
LIFE OF 8 YEARS. THE ESTIMATED
SALVAGE VALUE OF THE EQUIPMENT
AT THE END OF LIFETIME IS 20,000.
DETERMINE THE DEPRECIATION
CHARGE AND THE BOOK VALUE AT
THE END OF VARIOUS YEARS USING
DECLINING BALANCE METHOD WITH
k= 0.2.
D1= 0.2 * 1,00,000 = 20,000 (k * Bt-1)
B1= B0-D1 = 1,00,000- 20,000 = 80,000
B0= Cost of the asset

End of Years Depreciation Book Value

0 1,00,000
1 20,000 80,000
2 16,000 64,000
3 - -
4 - -
5 - -
6 - -
7 - -
8 - -
End of Years Depreciation Book Value

0 1,00,000

1 20,000 80,000

2 16,000 64,000

3 12,800 51,200

4 10,240 40,960

5 8192 32,768

6 6553.60 26,214.40

7 5242.88 20,971.52

8 4194.3 16,777.22
Sum of Years digit Method
In this method, book value of the asset decreases
at a decreasing rate. If the asset has a life of 8
years, first the sum of years is computed as
• Sum of years= 1+ 2+……+8 = n(n+1)/2 = 36
• The rates of depreciation for years 1 to 8 respectively is 8/36, 7/36,
6/36, 5/36, 4/36, 3/36, 2/36, 1/36.
• Dt= Rate * (P-F)
• Bt= Bt-1 –Dt
Bt= Book value of the asset at time period t
Bt-1= Book value of the asset at time period t-1
P= First cost of the asset
F= Salvage value of the asset
A COMPANY HAS PURCHASED AN
EQUIPMENT WHOSE FIRST COST IS
RS 1,00,000 WITH AN ESTIMATED
LIFE OF 8 YEARS. THE ESTIMATED
SALVAGE VALUE OF THE EQUIPMENT
AT THE END OF LIFETIME IS 20,000.
DETERMINE THE DEPRECIATION
CHARGE AND THE BOOK VALUE AT
THE END OF VARIOUS YEARS USING
SUM OF YEARS DIGIT METHOD OF
DEPRECIATION.
P= 1,00,000, F= 20,000, N=8 YEARS
SUM= n(n+1)/2 = 36
D1= rate * (P-F) = 8/36 * 80,000 = 17,777.77

End of Years Depreciation Book Value

0 1,00,000
1 17,777.77 (8/36 * 80,000) 82,222.23
2 15,555.55 (7/36 * 80,000) 66,666.68
3 - -
4 - -
5 - -
6 - -
7 - -
8 - -
End of Years Depreciation Book Value

0 1,00,000

1 17,777.77 82,222.23

2 15,555.55 66,666.68

3 13,333.33 53,333.35

4 11,111.11 42,222.24

5 8888.88 33,333.36

6 6666.66 26,666.70

7 4444.44 22,222.26

8 2222.22 20,000.04
Sinking Fund Method
The book value decreases at increasing rates with respect to the life of the asset.

P= First cost of the asset

F= Salvage value of the asset
Bt= Book value of the asset at time period t
A= (P-F) * i/(1+i) -1
Bt-1= Book value of the asset atntime period t-1
i= rate of return compounded annually
A= Annual equivalent amount
Dt = A * (1+i)t-1
Bt= Bt-1 –Dt
A COMPANY HAS PURCHASED AN
EQUIPMENT WHOSE FIRST COST IS RS
1,00,000 WITH AN ESTIMATED LIFE
OF 8 YEARS. THE ESTIMATED
SALVAGE VALUE OF THE EQUIPMENT
AT THE END OF LIFETIME IS 20,000.
DETERMINE THE DEPRECIATION
CHARGE AND THE BOOK VALUE AT
THE END OF VARIOUS YEARS USING
SINKING FUND METHOD WITH 12%
INTERESR RATE COMPOUNDED
ANNUALLY.
P= 1,00,000, F= 20,000, N=8 YEARS
i= 12%
A= (P-F) * i/(1+i)n -1 = 6504
D1 = A * (1+i)t-1 = 6504 * 1= 6504

End of Years Depreciation Book Value

0 1,00,000
1 6504 93,496
2 7284.48 86, 211.52
3 - -
4 - -
5 - -
6 - -
7 - -
8 - -
End of Years Depreciation Book Value

0 1,00,000

1 6504 93,496

2 7284.48 86, 211.52

3 8158.62 78,052.90

4 9137.65 68,915.25

5 10,234.17 58,681.08

6 11,462.27 47,218.81

7 12,837.74 34,381.07

8 14,378.27 20,002.80
An equipment has initial cost of ₹
2,00,000 having an estimated life of
5years. Find out the depreciation
amount and book value for various
years using declining balance
method of depreciation if a fixed
rate of depreciation is 20%.
End of year Depreciation Book value
0 -- 2,00,000
1 40,000 1,60,000
2 32,000 1,28,000
3 25,600 1,02,400
4 20,480 81,920
5 16,384 65,536
THANK YOU…