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TOPIC: Question Need clarification on Depreciation Methods

Need clarification on Depreciation Methods 7 years 11 months ago #1043

  • Bala R
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I have a question on Depreciation Calculation Methods? For all the methods Straight Line, Double declining and sum of digits the depreciation expense is calculated by multiplying the depreciation rate into the book value. While considering the book value do we need to consider the scrap value for every year? For example whenever we are considering the book value do we need to consider the book value as (BOOK VALUE-Scrap Value)? I believe this question makes more value in double declining because in other methods we use book value in the formula whereas in the double declining we are using “Book Value at the beginning of every year” in the formula so I need to know do we need to subtract the scrap every year in the double declining from the latest book value/book value at the beginning of the year. Can anyone please clarify? Thanks in advance.

Re:Need clarification on Depreciation Methods 7 years 11 months ago #1065

  • Simon Leung
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When calculating the depreciation value, always think of "book value" = BOOK VALUE - SCRAP VALUE.

The logic is: by the end the asset's finite life, its value will be depreciated to an ending scrap value - no matter that is a zero or any given amount.

Re:Need clarification on Depreciation Methods 7 years 11 months ago #1071

  • Cornelius Fichtner
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Balasubramanian,

Begin your calculation by first subtracting the scrap value from the original asset cost. Once only. Now use the remaining number to figure out the depreciation. Example:

Asset cost: 100
Scrap value: 20

Calculate 100 - 20 = 80 and this is the starting figure for your depreciation.
Until Next Time,
Cornelius Fichtner, PMP, CSM
President, OSP International LLC

Re:Need clarification on Depreciation Methods 7 years 11 months ago #1078

  • Bala R
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Thanks everyone for providing the answers. I did some home work this week end and I have come up with a spread sheet which contains the formulas and examples for depreciation calculations. When you get a chance please have a look and post your thoughts.

Attachment Depreciation_Methods.xls not found

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