Methods of Depreciation 1) STRAIGHT LINE METHOD Amount of depreciation is fixed. Double-declining balance method . Fixed Installment: This is the […] 4. Useful to assets whose service remain uniform throughout the year. For eg: Furniture & fixtures 2) WRITTEN DOWN VALUE METHOD Rate of depreciation is fixed. 1. Machine Hour Rate Method. 8. Depreciation expense for first year = (8… Although accountants have to follow generally accepted accounting principles (GAAP) for financial statement reporting purposes, they have different allowable methods to consider. Depreciation Expense: (Remaining life / Sum of the year) *(beginning book value – residual value) Example: Company XYZ purchases a machinery for Rs 10,000 with useful life of 8 years and residual value of machinery is Rs 1,000. REDUCING BALANCE METHOD• The amount of depreciation per year diminishes with every successive year.Example:- If an asset is depreciated by $2,000 in the first full year of usage, it will be depreciated by less than $2,000 (eg $1,600) in the second year; and even less (eg … How the Different Methods of Depreciation Work . Depreciation A/c Dr 10,000 To Computer A/c 10,000. However, the depreciation usually stops when the net book value is less than or equal to residual. In this depreciation method, the depreciation can keep going for much further than 8 years if we keep the table going with the formula. Many methods of measuring depreciation fail to take into account the interest lost on capital invested in an asset; the annuity method of depreciation makes up for this deficiency. What Is Depreciation? Sum-of-the-Years-Digits Depreciation Method: It is one of the most accelerated depreciation methods. Diminishing Balance Method 3. A depreciation method is the systematic manner in which the cost of a tangible asset is expensed out to income statement. Depreciation means the decrease in the value of physical properties or assets with the passage of time and use. Thus depreciation is shown as an Indirect expense in the debit side of profit and loss account and asset’s value is to be shown after the reduction of depreciation in the balance sheet. There are three methods for depreciation: straight line, declining balance, sum-of-the-years' digits, and units of production. Depletion Method 8. Depreciation Fund Method 5. Depreciation isn’t part of the whole equation for figuring the fair market value, which is the amount of money the company may […] Different methods of asset depreciation are used to more accurately reflect the depreciation and current value of an asset. A company may elect to use one depreciation method over another in order to gain tax or cash flow advantages. Method # 1. The methods are: 1. Specifically, it is an accounting concept that sets an annual deduction considering the factor of time and use on an asset's value. Revaluation Method 7. Depreciation is the method of allocating costs to the appropriate period. Fixed Installment 2. ADVERTISEMENTS: This article throws light upon the top seven methods for charging depreciation on assets. For tax, MACRS is the relevant depreciation method. The double-declining balance method is a form of accelerated depreciation. There is also another method of accounting for depreciation, although it is rarely used. Annuity Method 4. Insurance Policy Method 6. It is the non-cash method of representing the reduction in value of a tangible asset. Popular depreciation methods include straight-line method, declining balance method, units of production method, sum of year digits method. Assessment of Depreciation 9. 3) ANNUITY METHOD Depreciation is calculated from annuity table. 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