Formula for Calculating Depreciation
1. When Scrap Value is given (To find the rate of depreciation):
[Tex]Rate~of~Depreciation=\frac{Cost~Price~of~Asset-Scrap~Value}{Estimated~Life~of~Assets}[/Tex]
2. When Rate of Depreciation is given:
[Tex]Depreciation=\frac{Written~Down~Value~of~the~Asset\times{Rate~of~Depreciation}}{100}[/Tex]
Difference between Straight Line and Written Down Value Method of calculating Depreciation
The word “depreciation” comes from the Latin word ‘depretium’ where ‘De’ means decline and ‘pretium’ means price. Thus the word ‘depretium’ stands for the decline in the value of assets. Depreciation refers to the decrease in the value of assets of the company over the time period due to use, wear and tear, and obsolescence. In others words, it is the method to allocate the cost of an asset over its useful life. Depreciation is always charged on the cost price of the asset and not on its market price. It is charged every year to the extent of the depreciable amount. Examples of assets that can be depreciated are Machines, Computers, Furniture, Vehicles, etc.
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