Methods of Calculating Depreciation 1. Straight-Line Method: The straight-line method calculates the depreciation expense by evenly dividing the total c...
Methods of Calculating Depreciation
1. Straight-Line Method:
The straight-line method calculates the depreciation expense by evenly dividing the total cost of the asset over its useful life. The useful life is the period over which the asset is expected to produce revenue. For example, if an asset costs 2,000 ($10,000/5).
2. Double Declining Balance (DDB) Method:
The DDB method calculates depreciation by using a formula that involves two consecutive depreciation rates. The first depreciation rate is calculated by dividing the original cost of the asset by its useful life. The second depreciation rate is calculated by dividing the first depreciation rate by 2. The depreciation expense is calculated by multiplying the two depreciation rates together.
3. Double-Declining Balance (DDB) on an Assets and Depreciations Account:
The DDB method is an accelerated depreciation method that provides a more accurate match between the asset's book value and its actual cash flows. This method involves creating two accounts: an Assets account and a Depreciations account. The depreciation expense is recorded directly to the Depreciations account.
4. Units of Production (UOP) Method:
The UOP method calculates depreciation based on the number of units produced and the average cost per unit. The depreciation expense is calculated by multiplying the number of units produced by the average cost per unit.
5. Depreciable-Cost-of-Goods-Sold (DCOS) Method:
The DCOS method calculates depreciation by using the cost of the asset when it was purchased and its current market value. The depreciation expense is calculated by subtracting the cost of the asset from its current market value