How to calculate Depreciation?
Answers
Answer:
dep= gdp - factor cost of asset
Answer:
This questions is answered from an accountancy point of view.
Depreciation is the fall in value of a fixed asset over time. The term depreciation is generally used for tangible assets. Depreciation on intangible assets is called amortization and on natural resources is called depletion.
There are two methods to calculate depreciation namely
a) Straight Line Method (SLM) - original cost
b) Written down value Method (WDV) - book value
A) STRAIGHT LINE METHOD
In the straight line method, the depreciation is calculated on original cost over the years.
Depreciation = rate of depreciation x cost of the asset
Rate of depreciation = (Depreciable amount/ estimated useful life) x 100
Depreciable amount = Cost - Salvage value
(Salvage value or scrap value is the value in which the asset is expected to be sold after its useful life)
For example, if an asset is purchased for 1,00,000 rupees and rate of depreciation is 10%. The depreciation cost is split equally for its estimated useful life that is 10,000 for every year the machine serves.
B) WRITTEN DOWN VALUE METHOD
In the written down value method, the depreciation is calculated on book value.
The book value of an asset is the value at which it appears in the books of accounts.
Book value = cost - accumulated depreciation
Accumulated depreciation = sum of the depreciation of all previous years.
Depreciation for a particular year = rate of depreciation (%) x BOOK VALUE
Depreciation for a group of years =
n being the number of years
For example, if an asset is bought for 1,00,000 and the rate of depreciation is 10%. The depreciation for the first year will be 10% of 1,00,000 which is 10,000. The next year the depreciation will be 10% of (1,00,000 - 10,000) which is 9,000. And for the next year it will be 8,100. And so on and so forth.
This is the concept of depreciation. Hope this is what you are looking for.
Regards