Methods of Depreciation. Georgia CTAE Resource Network Instructional Resources Office Written by: Dr. Marilynn K. Skinner May 2009. Four Methods. Straight Line Declining Balance Sum of the Year’s Digits Units of Production. Straight Line. Annual Depreciation = Cost – Salvage Value
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Georgia CTAE Resource Network
Instructional Resources Office
Written by: Dr. Marilynn K. Skinner
Annual Depreciation = Cost – Salvage Value
Years of Useful Life
Example: You purchase a truck that costs $19,000. It has a salvage value of $5,000 and a useful life of 5 years. What is the annual depreciation?
Annual Depreciation = 19,000-5,000
Annual Depreciation = $2,800
Declining balance is calculated on either 1.5 X 0r 2 X the straight line amount (Percentage)
Straight line percentage is calculated by dividing 1 by the number of years of useful life.
Each consecutive year, the depreciation amount is calculated by multiplying the percentage by the book value (Cost – accumulated depreciation)
Example: You purchase a truck that costs $19,000. It has a salvage value of $5,000 and a useful life of 5 years. What is the annual depreciation
First add all the digits of the years of useful life. For instance: For 5 years you would add
1+2+3+4+5=15. Each year make a fraction of the year/sum.
Johnson Company purchases a machine for $500,000. The machine is expected to produce 2,000,000 units. In the first year the machine produced 400,000 units.
Calculate cost per unit:
Depreciable Cost/Expected Units of Production
500,000/2,000,000 = .25
Calculate Current Year Depreciation:
Cost per unit X Current Year’s Units of Production
.25 X 400,000 = $100,000
Depreciation Expense XXXX
Accumulated Depreciation XXXX
Johnson Company sells its equipment that cost $500, 000 with $200,000 of Accumulated Depreciation for $350,000.
Cash in Bank 350,000
Accumulated Depreciation 200,000
Gain on Sale of Equipment 50,000
*A loss is recorded as a debit