Different methods of asset depreciation are used to more accurately reflect the depreciation and current value of an asset. Depreciation Fund Method 5. Revaluation Method 7. In this depreciation method, the depreciation can keep going for much further than 8 years if we keep the table going with the formula. Although accountants have to follow generally accepted accounting principles (GAAP) for financial statement reporting purposes, they have different allowable methods to consider. What Is Depreciation? 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. 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. 8. Depreciation isn’t part of the whole equation for figuring the fair market value, which is the amount of money the company may […] It is the non-cash method of representing the reduction in value of a tangible asset. However, the depreciation usually stops when the net book value is less than or equal to residual. There are three methods for depreciation: straight line, declining balance, sum-of-the-years' digits, and units of production. A depreciation method is the systematic manner in which the cost of a tangible asset is expensed out to income statement. 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. Depreciation A/c Dr 10,000 To Computer A/c 10,000. Insurance Policy Method 6. Depletion Method 8. For eg: Furniture & fixtures 2) WRITTEN DOWN VALUE METHOD Rate of depreciation is fixed. Popular depreciation methods include straight-line method, declining balance method, units of production method, sum of year digits method. Machine Hour Rate Method. 1. Double-declining balance method . Fixed Installment 2. Annuity Method 4. Specifically, it is an accounting concept that sets an annual deduction considering the factor of time and use on an asset's value. For tax, MACRS is the relevant depreciation method. Assessment of Depreciation 9. Depreciation means the decrease in the value of physical properties or assets with the passage of time and use. The double-declining balance method is a form of accelerated depreciation. 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 … ADVERTISEMENTS: This article throws light upon the top seven methods for charging depreciation on assets. There is also another method of accounting for depreciation, although it is rarely used. Methods of Depreciation 1) STRAIGHT LINE METHOD Amount of depreciation is fixed. 4. Depreciation expense for first year = (8… 3) ANNUITY METHOD Depreciation is calculated from annuity table. Useful to assets whose service remain uniform throughout the year. How the Different Methods of Depreciation Work . The methods are: 1. Fixed Installment: This is the […] Method # 1. Depreciation is the method of allocating costs to the appropriate period. Diminishing Balance Method 3. 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