Guide to Accumulated Depreciation
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What Is Accumulated Depreciation?
How Does Accumulated Depreciation Work?
Calculating Accumulated Depreciation
Accumulated Depreciation Formula
Pros and Cons of Accumulated Depreciation
4 GAAP Depreciation Methods
1. Straight Line
2. Declining Balance
3. Units of Production
(Cost of Asset - Salvage Value) / Estimated Total Units = Units of Production Rate Units of Production Rate x Actual Units Produced = Annual Accumulated Depreciation
4. Sum-of-the-Year's Digits
Cost of the Asset - Salvage Value = Depreciable Base Determine the sum of the useful years of the asset by adding up each digit in the number. Example: 10 years would equal 55 because 1+2+3+4+5+6+7+8+9+10 = 55 A faster formula is n(n+1) / 2 Example: 10(10+1)/ 2= 55 Calculate the depreciation factor by dividing the remaining useful life of the asset by the sum of the useful years. Example: 10/55, 9/55/ 8/55, etc. For an asset with a 10-year useful life, you would multiply the depreciable base by 10/55 for the first year. In the second year, you would multiply it by 9/55 and so on until the last year where the factor would be 1/55.
Accumulated Depreciation Examples
Straight Line Example
Declining Balance Example
$55,000 (Book Value) x 20%(Depreciation Rate) = $11,000 (Annual Accumulated Depreciation for the first year) $55,000 - $11,000 = $44,000 (Book Value at end of first year) $44,000 x 20% = $8,800 (Depreciation Expense for the second tax year) $44,000 - $8,800 = $35,200 (New Book Value after second tax year)
Units of Production Example
$55,000/ 200,000 = 0.275 (Units of Production Rate) 0.275 x 40,000 = $11,000 (Annual Depreciation)
Sum of the Year’s Digits Example
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