In Accounting, there are four basic depreciation methods are used to calculate: (1)Straight-line (2) Double declining balance (3)Units of production (4) Sum of years digit.
Depreciation is not a technique to assess fixed assets and depreciation is not by doing the auto companies set aside cash to purchase fixed assets.
Factors that affect depreciation is:
- Cost of fixed assets,
- The age of economical fixed assets,
- The value of the residue, and
- Patterns of use of the fixed assets.
- Straight Line Method
- Declining Balance Method
- Methods The Number Of Year Number
- Method Of The Input Unit
- The Unit's Output Method
Straight Line Method
With this method, the annual depreciation can be determined in two ways, namely:( cost-residual value): age
Suppose that the value of a piece of equipment acquired years worth $ 16,000,000.00 2012 and the benefit is determined by the value of the remaining 5 years of Usd 1,000,000.00, the magnitude of the depreciation year 2012 can be calculated as follows: (16.000.000-1,000,000)/5 = $ 3,000,000.00.
Specified% depreciation the annual depreciation, later acquired by way of multiplying the% cost are depreciated as follows:
- The annual depreciation Percentage = 100%: age, so a = 100%: 5 = 20%.
- Calculated depreciation = 20% x (16 million – 1 million) = Usd 3,000,000.00.
Declining Balance Method
First, determine the depreciation percentage, usually twice the percentage depreciation method straight line. Thus if there is a 5 year old machine, then the annual depreciation rate/percentage is 2 x 100%: 5 = 40%.After it was determined the book value at the beginning of the year. The book value of fixed assets account balance is reduced by accumulated depreciation account balances. For the year of purchase, due to the accumulated depreciation schedule does not exist, then the value of the book is the price of his acquisition.
Furthermore the magnitude of depreciation a year is calculated by multiplying the ways% shrinkage with book value. Suppose there is a machine purchased January 2, 2012 at a price of Usd 16 million and dates can be used for 5 years. Depreciation years 2012, 2013, and 2014 can be calculated as follows:
Rate/percentage depreciation = 2 x (100%: 5) = 40%
Depreciation year 2012 = 40% x book value
= 40% x $ 16 million
= $ 6.4 million
2013 year depreciation = 40% x book value beginning in 2002
= 40% x ($ 16 million – Usd 6.4 million)
= $ 3,840,000
2014 year depreciation = 40% x book value beginning in 2003
= 40% x (16 million – 6.4 million – 3,840,000)
$ = 2,304,000
Annual Depreciation can be searched by other formulas to determine the book value at the end of
year n = cost x (1 – tariff)n
= $ 16 million x (1-0.4) n
Book value end of 3rd year = $ 16 million x (1-0.4) 3
$ = 0.216 x 16 million
= $ 3,456,000.00.
Depreciation year 2014 is 40% x $ 3,456,000 = $ 1,282,600.00.
Units of production
The allocation of the cost of fixed assets carried out based on the number of years of use. If the age of fixed assets was 5 years old, then its use is year to year 1,2,3, 4 .5. The sum of these numbers will be used as the denominator. Meanwhile the numerator is the rest of the age of the early years of use. At the beginning of the use of the rest of his days was still five years, hence the numerator is 5. After use 1 year, then at the beginning of the second year of the rest of his days was four years so that the the numerator is 4. And so on for third, fourth, and so on.
Suppose there is a machine purchased January 2, 2012 at a price of Usd 16 million at the time the benefits of 5 years with a value of $ 1 million residue. Depreciation years 2012, 2013, 2014, 2015, and 2016 can be calculated as follows:
Method Of The Input Unit
The allocation of the cost of fixed assets annual depreciation is used to load the input amount issued (e.g. engine hours) in a given year as compared to the estimates of the input (machine) must be issued to the fixed assets. Suppose a machine was purchased on January 2, 2012 at a price of Usd 16 million and the estimated 100,000 hours can be used during the residue value of $ 1 million. During the year 2012 be used for 5,000 hours, then depreciation year 2012 are:(5,000/100,000) x ($ 16 million – Usd 1 million) = Dollar 750,000
Method Of Unit Outputs (Results)
The allocation of the cost of the assets to the amount of annual depreciation using a load of product produced in a given year as compared to the estimates of output (number of items) to be generated until the fixed assets.Suppose a machine was purchased on January 2, 2012 at a price of Usd 16 million and estimates can be used to make products as much as 200,000 units with a value of $ 1 million residue. During the year 2012 be used for 20,000 units then the depreciation year 2012 are:
(20,000/200,000) x ($ 16 million – Usd 1 million) = Usd 1.5 million
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