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Five Methods Of Depreciation

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Depreciation is the allocation of the depreciable amount of a fixed asset over its useful life. The examples of assets that can normally last for more than one year but will not last endless for the organization are buildings, machinery, motor vehicles and office equipment. There will be a permanent decrease or reduction in the value of non-current asset during a given period of time. In addition, land is categorized as one of the fixed assets but it is rarely to be calculated and reported for depreciation because its value will increase and assumed to last indefinitely unless it was damaged or wasted away by bad weather or disaster that cause it loss in value. The company has to include depreciation accounting in order to avoid misleading …show more content…

(b) The estimated residual or salvage value of the asset which is the amount of money that the company expects to recover it back at the end of its useful life or until the date it is being sold or traded in.
(c) The estimated useful life of the asset which indicates the period of time that the company plans to use for the asset which usually expressed in years or months.
(d) The method of calculating depreciation for an asset. There are totally 5 methods of calculating depreciation.
Methods Explanations
Straight line or fixed installment method An asset will have constant amount of depreciation each year of its useful economic life.
Reducing balance or diminishing balance method The depreciation amount of an asset will higher at first but lower later of the useful life.
Revaluation or appraisal method The comparison between the value of asset at beginning and the estimated value at the end of the year.
Usage method Depreciation will be measured by calculating the depreciation per year and multiply with the actual units of production.
Sum of digits method Depreciation will be charged annually which computed by fraction times with the cost of an …show more content…

(c) The estimated useful life of the asset which indicates the period of time that the company plans to use for the asset which usually expressed in years or months.
(d) The method of calculating depreciation for an asset. There are totally 5 methods of calculating depreciation.
Methods Explanations
Straight line or fixed installment method An asset will have constant amount of depreciation each year of its useful economic life.
Reducing balance or diminishing balance method The depreciation amount of an asset will higher at first but lower later of the useful life.
Revaluation or appraisal method The comparison between the value of asset at beginning and the estimated value at the end of the year.
Usage method Depreciation will be measured by calculating the depreciation per year and multiply with the actual units of production.
Sum of digits method Depreciation will be charged annually which computed by fraction times with the cost of an

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