Definition Depreciation. Description.
Depreciation is the decrease in the value of any type
of Tangible Assets, such as
plants, equipment and vehicles, over a period of time resulting from use,
wear and tear, obsolescence or impairment. The opposite from appreciation.
The use of depreciation affects a company's
Book Value, and, in most countries,
its taxes.
Assets Held For Sale are no longer subject to regular depreciation
A number of depreciation techniques exist, such as:
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Straight-line Depreciation. The simplest and most
often used technique, in which the company estimates the "salvage value"
of the asset after the length of time over which it is depreciated, and
assumes the drop in the asset's value is spread evenly in equal, yearly
increments over that amount of time. The salvage value is an estimate of
the value of the asset at the time it will be sold or disposed of.
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Accelerated
Depreciation. A method of cost write-off in which the depreciation
allowances are greater in the first few years of ownership than in subsequent
years.
- Sum of Years Digits Depreciation Method. An accelerated
schedule that adds up the digits for the remaining years of the useful life.
An asset with three years of remaining useful life would add up 3 + 2 +
1 = 6. The depreciation schedule is then 3/6th for the first year, 2/6th
for the second and 1/6th for the 3rd year, assuming no remaining value.
- Declining-Balance Depreciation Method. Each period's
depreciation is based on the previous year's net book value, the estimated
useful life, and a factor. The factor is commonly two; this is then known
as double declining-balance.
- Double Declining Balance Depreciation Method. Same
as Declining-Balance Depreciation Method where the factor used equals 2.
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The similar concept for
intangible assets is called
amortization. For natural resources
like minerals and oil the similar concept is called
depletion.
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Using Excel to Calculate Sum of Years Depreciation
Initial Understanding of Using Excel to Calculate Depreciation...
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News about Depreciation
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Compare also:
Pro Forma Earnings
| Residual Value
| Amortization |
Depletion
| Tangible Assets
| Time Value of Money
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