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Depreciation Methods
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Straight-Line Depreciation
Formula: Annual Depreciation Expense = (Cost - Salvage Value) / Useful Life Application: To spread the cost of an asset evenly over its useful life.
Declining Balance Depreciation
Formula: Annual Depreciation Expense = Book Value at Beginning of Year x Depreciation Rate Application: To record higher depreciation expenses during the early years of an asset's life.
Double Declining Balance Depreciation
Formula: Annual Depreciation Expense = 2 x Straight-Line Depreciation Rate x Book Value at Beginning of Year Application: To accelerate the recognition of depreciation expense, commonly used for assets that quickly lose value.
Sum-of-the-Years'-Digits Depreciation
Formula: Annual Depreciation Expense = (Remaining Life / Sum of the Years' Digits) x (Cost - Salvage Value) Application: To create a depreciation schedule that accelerates more than straight-line but less than declining balance methods.
Units of Production Depreciation
Formula: Annual Depreciation Expense = (Cost - Salvage Value) / Total Estimated Production x Actual Production Application: To align the depreciation expense with the usage or production capacity of the asset.
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