0 Accountancy accounts depreciation problem 1

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Depreciation accounts problem 1

Last Updated On: 27-Oct-2021Posted On: 26-Oct-2021

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Formula to Calculate Depreciation Expense

The formula of Depreciation Expense is used to find how much value of the asset can be deducted as an expense through the income statement. Depreciation may be defined as the decrease in the value of the asset due to wear and tear over a period of time. It is a non-cash expense forming part of profit and loss statements. E.g., depreciation on plant and machinery, furniture and fixture, motor vehicles, and other [url=https://www.wallstreetmojo.com/tangible-assets/]tangible fixed assets[/url].

There are primarily 4 different formulas to calculate the depreciation amount. Let’s discuss each one of them –

Straight Line Depreciation Method = (Cost of an Asset – Residual Value)/Useful life of an Asset.
Diminishing Balance Method = (Cost of an Asset * Rate of Depreciation/100)
Unit of Product Method =(Cost of an Asset – Salvage Value)/ Useful life in the form of Units Produced.
[url=https://www.wallstreetmojo.com/double-declining-balance-method/]Double Declining Balance Method[/url] = 2*(Beginning Value – Salvage Value)/Useful life

Explanation

Depreciation is an indirect expense charged on tangible [url=https://www.wallstreetmojo.com/fixed-assets/]fixed assets[/url] in a systematic manner to provide the actual cost of an asset over its useful life is proportionate to benefits derived from such assets. The calculation of the depreciation equation requires knowledge of some factors. These factors are:

    • Cost of an Asset: Asset cost includes the amount paid to purchase such assets and other related expenses to bring such assets in a usable position such as transportation, installation, taxes paid, etc.
    • Residual Value: [url=https://www.wallstreetmojo.com/residual-value/]Residual Value[/url] is the amount that is expected to realize at the end of the useful life of an asset.
    • Useful life: Expected life of an asset up to which an organization can derive benefits from it.
    • [url=https://www.wallstreetmojo.com/depreciation-rate/]Rate of[/url] Depreciation: It is the rate at which an organization should reduce the value of an asset in proportionate to benefits derived from such assets.

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