Method # 1. Depreciation Expense: (Remaining life / Sum of the year) *(beginning book value â residual value) Example: Company XYZ purchases a machinery for Rs 10,000 with useful life of 8 years and residual value of machinery is Rs 1,000. Annuity Method 4. There are three methods for depreciation: straight line, declining balance, sum-of-the-years' digits, and units of production. Fixed Installment 2. How the Different Methods of Depreciation Work . Popular depreciation methods include straight-line method, declining balance method, units of production method, sum of year digits method. 1. Revaluation Method 7. Although accountants have to follow generally accepted accounting principles (GAAP) for financial statement reporting purposes, they have different allowable methods to consider. A depreciation method is the systematic manner in which the cost of a tangible asset is expensed out to income statement. However, the depreciation usually stops when the net book value is less than or equal to residual. It is the non-cash method of representing the reduction in value of a tangible asset. Depreciation A/c Dr 10,000 To Computer A/c 10,000. 4. Depreciation is the method of allocating costs to the appropriate period. The double-declining balance method is a form of accelerated depreciation. Many methods of measuring depreciation fail to take into account the interest lost on capital invested in an asset; the annuity method of depreciation makes up for this deficiency. ADVERTISEMENTS: This article throws light upon the top seven methods for charging depreciation on assets. Depreciation expense for first year = (8â¦ Insurance Policy Method 6. Specifically, it is an accounting concept that sets an annual deduction considering the factor of time and use on an asset's value. Depreciation Fund Method 5. 8. Fixed Installment: This is the [â¦] Machine Hour Rate Method. Sum-of-the-Years-Digits Depreciation Method: It is one of the most accelerated depreciation methods. 3) ANNUITY METHOD Depreciation is calculated from annuity table. For tax, MACRS is the relevant depreciation method. Depreciation isnât part of the whole equation for figuring the fair market value, which is the amount of money the company may [â¦] Depreciation means the decrease in the value of physical properties or assets with the passage of time and use. Different methods of asset depreciation are used to more accurately reflect the depreciation and current value of an asset. Assessment of Depreciation 9. In this depreciation method, the depreciation can keep going for much further than 8 years if we keep the table going with the formula. Diminishing Balance Method 3. There is also another method of accounting for depreciation, although it is rarely used. Thus depreciation is shown as an Indirect expense in the debit side of profit and loss account and assetâs value is to be shown after the reduction of depreciation in the balance sheet. REDUCING BALANCE METHODâ¢ The amount of depreciation per year diminishes with every successive year.Example:- If an asset is depreciated by \$2,000 in the first full year of usage, it will be depreciated by less than \$2,000 (eg \$1,600) in the second year; and even less (eg â¦ Methods of Depreciation 1) STRAIGHT LINE METHOD Amount of depreciation is fixed. A company may elect to use one depreciation method over another in order to gain tax or cash flow advantages. The methods are: 1. What Is Depreciation? For eg: Furniture & fixtures 2) WRITTEN DOWN VALUE METHOD Rate of depreciation is fixed. Double-declining balance method . Depletion Method 8. Useful to assets whose service remain uniform throughout the year. Method: it is rarely used tax or cash flow advantages for tax, MACRS is the manner! 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