Ntypes of depreciation methods with examples pdf

The rate of depreciation is the reciprocal of the estimated useful life of an asset, so, for example, the useful life of an asset is 5 years, the depreciation charged will be 15 20%. Specifically, it is an accounting concept that sets an annual deduction considering the factor of time and use on an assets value. Methods of calculating depreciation expenses of construction machinery, 220 journal of applied engineering science 1020121 45. The periodical amount of depreciation is affected by the following factors 1. This method is a mix of straight line and diminishing balance method. However, a fixed rate of depreciation is applied just as in case of straight line method. The total amount of depreciation charged over an assets entire useful life i. One of its main function is to calculate the depreciation expense for each asset. Pdf methods of calculating depreciation expenses of. An example of depreciation if a delivery truck is purchased a company with a cost of rs. Depreciation means the decrease in the value of physical properties or assets with the passage of time and use. This guide has examples, formulas, explanations is a very common, and the simplest, method of calculating depreciation expense.

In financial accounting there are three types of depreciation methods. Depreciation is an accounting process by which a company allocates an assets cost throughout its useful life. Depreciation is the reduction in the value of an asset due to usage, passage of time, wear and tear, technological outdating or obsolescence, etc. They have estimated the useful life of the machine to be 8. The adoption of a particular depreciation method does however effect the amount of depreciation expense charged in each year of an assets life. A depreciation schedule is a table where it breaks down the longterm assets of the company. Thus, depreciation is charged on the reduced value of the fixed asset in the beginning of the year under this method. Simplest, most used and popular method of charging depreciation is the straightline method.

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