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Depreciation

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Running Head: DEPRECIATION 1

Depreciation

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DEPRECIATION 2

Depreciation

Depreciation means the process of allocating the cost of equipment, machinery and other

plant assets over their useful life. The useful life of an asset is the estimate productive life of the

asset. The salvage value is the value that the organization expects to get after selling or

exchanging an asset after its useful life. Depreciable cost is the total cost of the asset minus the

expected salvage value of the asset. Net book value is the total cost of the asset minus its

accumulated depreciation assigned to it. There are different depreciation methods. The straight-

line depreciation will allocate the cost of an asset over its useful life in even manner. The annual

depreciation expense of the asset is calculated by dividing the depreciable cost of the asset by the

number of years in the useful life of the asset (Beaver & Dukes, 1974).

Annual Depreciation Expense = (Depreciable cost)/ (Useful life in years)

The straight-line rate is one divided by the number of years in service life of the asset.

1/ (Useful life in years) = Straight-line rate

The double-declining balance depreciates two times the straight-line rate each period.

The alternative methods include units of production method. This allocates the cost of assets

across the units that the asset produces (Beaver & Dukes, 1974).

The depreciation method to use in this case is the straight –line method because of

various reasons. The first is that it is simple to understand and apply. The method also provides a

positive effect on reported income. This method produces a high net income than other methods

in the early years of an asset. The reported net income affects the bonuses paid to debt

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Depreciation Name Institution Date Depreciation Depreciation means the process of allocating the cost of equipment, machinery and other plant assets over their useful life. The useful life of an asset is the estimate productive life of the asset. The salvage value is the value that the organization expects to get after selling or exchanging an asset after its useful life. Depreciable cost is the total cost of the asset minus the expected salvage value of the asset. Net book value is the total cost of the asset minus its accumulated depreciation assigned to it. There are different depreciation methods. The straight-line depreciation will allocate the cost of an asset over its useful life in even manner. The annual depreciation expense of the asset is calculated by dividing the depreciable cost of the asset by the number of years in the useful life of the asset (Beaver & Dukes, 1974). Annual Depreciation Expense = (Depreciable cost)/ (Useful life in years) The straight-line rate is one divided by the number of years in service life of the asset. 1/ (Useful life in years) = Straight-line rate The double-declining balance depreciates two times the straight-line rate ea ...
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