Discuss special depreciation methods and other depreciation issues.
Definition Video Definition Accounting method wherein the cost of a tangible asset is spread over the asset's useful life. Depreciation usually denotes how much of the asset's value has been used up and is usually considered an operating expense. Depreciation occurs through normal wear and tear, obsolescence, accidents, etc. Video
Expert Solution
Step 1
Depreciation is decrease in the value of assets due to normal wear, tear, and obsolesce
Depreciation only levied on fixed assets such as plant and machinery, building etc.
Depreciation arises due to change in technology, usage, passage of time
Various methods of depreciation are as follows:
Straight line method
Diminishing balance methods
Sum of years digit methods
Machine hours rate methods
Depletion methods
Revaluation methods
Step 2
Straight line methods: Under this method same amount of depreciation is charged in every year during the life of the assets
Diminishing balance methods : Under this method depreciation is charged on written down balance of an assets
Sum of years digit method: Under this method depreciation is calculated using this formula
Machine hours rate methods: Under this method depreciation is charged on the basis of no. of hours the machine is used
Formula:
Depletion methods: this method of depreciation is used when the assets is of natural resources.
Examples of natural resources: forest, mines, oils
Revaluation method : Amount of depreciation under this method is equal to difference between revalued figure and the book value of assets
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