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