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Depreciation Complete Info
Depreciation Complete Info
Depreciation Complete Info
TYPES OF DEPRECIATION:-
(1) STRAIGHT LINE METHOD: Straight-line depreciation is the simplest and most-
often-used technique, in which the company estimates the salvage value of the asset at the end of
the period during which it will be used to generate revenues (useful life) and will expense a portion
of original cost in equal increments over that period. The salvage value is an estimate of the value
of the asset at the time it will be sold or disposed of; it may be zero or even negative. Salvage
value is also known as scrap value or residual value
Explanations
we get:
1 n/sum of n
2 (n-1)/sum of n
3 (n-2)/sum of n
4 (n-3)/sum of n
5 (n-4)/sum of n
6 *
7 *
Where n = 1+2+3+4+5……..+n.
These rates are then applied to the net cost. For a machine of 10
years economic life and Rs. 100000, the depreciation for each is
computed as follow:
Year depreciation Rate. Annual dep. Net book value
[The Double Declining Method takes an amount (usually double, i.e. 200% of the
amount that we take in the Straight Line Method) and applies it to the book value of
an asset each year]:
(b)
If the cost of an asset is RS 10000 and residual value RS
1296, economic life 4years and the rate of depreciation
would be 40% calculated as follows:
Depreciation rate = 1- 4 (1296/10000) ^1/2
= 1 – 6/10
= 40%.