Depreciation
Depreciation
Straight-line
Double declining balance
Units of production
Sum of years digits
1: Straight-Line Depreciation Method
Method:
Depreciation Expense = (Cost – Salvage value)
/ Useful life
Example
Consider a piece of equipment that costs
$25,000 with an estimated useful life of 8
years and a $0 salvage value.
the-years-digits method:
Depreciation Expense = (Remaining life /
10/55x (100,000-10,000)=16363
For year 2:
9/55x(90,000)=14727
For year 3:
8/55x (90,000)=13090
Example
Consider a piece of equipment that costs
$25,000 and has an estimated useful life of 8
years and a $0 salvage value. To calculate the
sum-of-the-years-digits depreciation,
The information in the schedule is explained below:
The depreciation base is constant throughout the years and is
calculated as follows:
Depreciation Base = Cost – Salvage value
Depreciation Base = $25,000 – $0 = $25,000
2. The remaining life is simply the remaining life of the asset.
For example, at the beginning of the year, the asset has a
remaining life of 8 years. The following year, the asset has a
remaining life of 7 years, etc.
3. RL / SYD is “remaining life divided by sum of the years.” In
this example, the asset has a useful life of 8 years. Therefore,
the sum of the years would be 1 + 2 + 3 + 4 + 5 + 6 + 7 + 8
= 36 years. The remaining life in the beginning of year 1 is 8.
Therefore, the RM / SYD = 8 / 36 = 0.2222.
4. The RL / SYD number is multiplied by the depreciating
base to determine the expense for that year.
5. The same is done for the following years. In the beginning of year
2, RL / SYD would be 7 / 36 = 0.1944. 0.1944 x $25,000 = $4,861
expense for year 2.