Depreciation Methods

Sum-of-Years' Digits Method
Depreciation methods that provide for a higher depreciation charge in the first year of an asset's life and gradually decreasing charges in subsequent years are called accelerated depreciation methods. This may be a more realistic reflection of an asset's actual expected benefit from the use of the asset: many assets are most useful when they are new. One popular accelerated method is the declining-balance method. Under this method the Book Value is multiplied by a fixed rate. Annual Depreciation = Depreciation Rate ''* Book Value at Beginning of Year'' The most common rate used is double the straight-line rate. For this reason, this technique is referred to as the double-declining-balance method. To illustrate, suppose a business has an asset with $1,000 Original Cost, $100 Salvage Value, and 5 years useful life. First, calculate straight-line depreciation rate. Since the asset has 5 years useful life, the straight-line depreciation rate equals (100% / 5) 20% per year. With double-declining-balance method, as the name suggests, double that rate, or 40% depreciation rate is used. The table below illustrates the double-declining-balance method of depreciation. Book Value at the beginning of the first year of depreciation is the Original Cost of the asset. At any time Book Value equals Original Cost minus Accumulated Depreciation. Book Value = Original Cost - Accumulated Depreciation Book Value at the end of year becomes Book Value at the beginning of next year. The asset is depreciated until the Book Value equals Salvage Value, or Scrap Value. The Salvage Value is not considered in determining the annual depreciation, but the Book Value of the asset being depreciated is never brought below its Salvage Value, regardless of the method used. The process continues until the Salvage Value or the end of the asset's useful life, is reached. In the last year of depreciation a subtraction might be needed in order to prevent Book Value from falling below estimated Scrap Value. Since declining-balance depreciation does not always depreciate an asset fully by its end of life, some methods also compute a straight-line depreciation each year, and apply the greater of the two. This has the effect of converting from declining-balance depreciation to straight-line depreciation at a midpoint in the asset's life.

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... Mass Depreciation Adjustment

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Declining-Balance Method

The composite method is applied to a collection of assets that are not similar, and have different service lives. For example, computers and printers are not similar, but both are part of the office equipment. Depreciation on all assets is determined by using the straight-line-depreciation method. Composite life equals the total Depreciable Cost divided by the total Depreciation Per Year. $5,900 / $1,300 = 4.5 years. Composite Depreciation Rate equals Depreciation Per Year divided by total Historical Cost. $1,300 / $6,500 = 0.20 = 20% Depreciation Expense equals the composite Depreciation rate times the balance in the asset account (historical cost). (0.20 * $6,500) $1,300. Debit Depreciation Expense and credit Accumulated Depreciation. When an asset is sold, debit Cash for the amount received and credit the asset account for its original cost. Debit the difference between the two to Accumulated Depreciation. Under the Composite method no gain or loss is recognized on the sale of an asset. Theoretically, this makes sense because the gains and losses from assets sold before and after the composite life will average themselves out. To calculate Composite Depreciation Rate, divide Depreciation Per Year by total Historical Cost. To calculate Depreciation Expense, multiply the result by the same total Historical Cost. The result, not surprisingly, will equal to the total Depreciation Per Year again. Common sense requires Depreciation Expense to be equal to total Depreciation Per Year, without first dividing and then multiplying total Depreciation Per Year by the same number. Creators of accounting rules sometimes are very creative, as was noted on the discussion forum of Accounting Coach at http://www.accountingcoach.com/accounting/discussion/517/group-depreciation-and-composite-depreciation/#Item_0

Wikipedia
Composite Depreciation Method

Group Depreciation method is used for depreciating multiple-asset accounts using straight-line-depreciation method. Assets must be similar in nature and have approximately the same useful lives.

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Accelerated Depreciation|Depreciation Methods|Depreciation Rates

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Best Way - GAAP Depreciation Methods | eHow.com

Best Way : GAAP Depreciation Methods. Asset depreciation is an accounting method ... Tax Method; When calculating depreciation for U.S. tax purposes, all assets entered into service ...

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Units of production methods ...

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Depreciation Methods, Accounting

Depreciation Methods. Depreciation methods based on time. Straight line method. Declining ... depreciation expenses for 2011, 2012 and 2013 using straight line depreciation method. ...

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Depreciation Calculator

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Accelerated Depreciation: Definition from Answers.com

Depreciation methods, chosen for income tax or accounting purposes, that offer greater deductions in early years. The straight-line method, rather than accelerated depreciation, ...

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Accelerated depreciation

Accelerated depreciation refers to any one of several methods by which a company, for 'financial accounting' ... For tax purposes, accelerated depreciation provides a way of ...

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Accelerated Depreciation Methods | eHow.com

Accelerated Depreciation Methods. Asset depreciation is a method of cost apportioning where an asset's total cost of investment, net of any salvage or disposal value, is ...

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Units-of-Production Depreciation Method | eHow.com

Depreciation stops when the book value is equal to the scrap value of the asset. Units-of-Production Depreciation Method; There are numerous depreciation methods, which ...

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