Sunday, July 12, 2009

Calculation of depreciation

There are four methods of calculating deprecation expense. Each of these four methods is looked at in detail below, but some general information is needed before depreciation can be calculated under any of the methods. These terms and their definitions are below.
1- estimated useful life; this is how long we expect the asset to be useful and it is the period of time recognizes deprecation expense. At the end of its useful life the assets should have a book value equal to the expected salvage value. (This may also be called service life.).
2- Estimated salvage value; this is the value we expected the asset to have at the end of its value useful life. The book value of the asset may not be depreciation below the salvage value. Some companies have an accounting policy that the salvage value always equal to $0. (This may also be called residual value.)
3- Deprecation amount; this is the amount that must depreciate over the useful life of the asset. It is equal to the capitalized amount (this is the cost of the asset) minus the salvage value of the asset.

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