# Guide to Accumulated Depreciation

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

## What Is Accumulated Depreciation?

*Recommended:*

*What Is An Alternative Depreciation System (ADS)?*

## How Does Accumulated Depreciation Work?

## Calculating Accumulated Depreciation

### Accumulated Depreciation Formula

## Pros and Cons of Accumulated Depreciation

Pros | Cons |

### Pros

### Cons

## 4 GAAP Depreciation Methods

*Recommended:*

*Non-GAAP vs GAAP*### 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

**$11,000.**

### 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)

**$19,800**

### Units of Production Example

$55,000/ 200,000 = 0.275 (Units of Production Rate) 0.275 x 40,000 = $11,000 (Annual Depreciation)

**$22,000**.

### Sum of the Year’s Digits Example

**$18,998**($9,999 + $8,999).

## The Takeaway

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### Frequently Asked Questions

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**Tax Information:**This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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