Depreciation

Three Depreciation methods

1. Straight line, 2. Units of activity, 3. Declining balance

2. Straight line rate

1 ÷ Useful life = Rate Rate * Depreciable cost of an asset = Accumulated depreciated expense

1. Straight line

Allocating the same amount of depreciable cost over the useful life of an asset Cost - Salvage value = Depreciable cost Depreciable cost ÷ Useful life = Annual depreciation expense

Depreciation applies to

Buildings, land improvements, equipment

Depreciable cost

Cost of the asset less its salvage value

Book value

Cost of the asset minus accumulated depreciation

Double declining rate

Double the straight line rate

Salvage value

Estimated value after its useful life

Declining balance

Produces a decreasing annual depreciation expense over the useful life based on the book value. Book value for the first year is the cost because there has been no depreciation, then it's adjusted from Accumulated depreciation. The rate at which it's depreciated remains the same for every year

Depletion

Use for cost allocation of Natural resources Depreciable cost ÷ Total estimated units = Depletion cost per unit Depletion cost per unit * Number of units extracted and SOLD = Annual depletion expense

Units of activity

Useful life of an asset is express in total units of production Depreciable cost ÷ Total units = Depreciable cost per unit Depreciable cost per unit * Units of activity during the year = Annual depreciation expense