Understanding Methods of Depreciation

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Methods of depreciation are generally used to know the decreases in the value of a company's assets. Generally accepted accounting principles (GAAP) are used for calculating and reporting depreciation. Accounting professionals use several methods of depreciation. Those who want to learn depreciation methods can go for accounting courses.

How different methods of Depreciation work?

The straight line, declining balance, sum-of-the-year digit, and production units are the four depreciation methods. Let's check them in detail:

Straight-Line-Depreciation

Accounting professionals use this method to find the estimated salvage value (scrap value) of an asset near the end of its lifespan. That same value is subtracted from the original value. The difference is simply the total amount of depreciation during the asset's productive use.

Declining Balance Depreciation

This method is mainly used for minimizing tax exposure and is a type of accelerated depreciation. If an asset is promising more excellent utility in its early stages of life, then the declining balance method is used on that asset. When selling the asset comes, this method helps to make a more significant realized gain.

Some-of-the-years' digit depreciation

This method is often called the SYD method. This type of approach for determining depreciation is more appropriate than the straight-line depreciation model. It's a beneficial method if an asset is depreciated more quickly than the usual speed. Like declining balance depreciation, this method is utilized if an asset is showing better utility in its beginning.

Units of production depreciation

The units of production depreciation method are a more practical solution for assembly and product lines. Because it offers an equal expense rate per unit produced. The formula uses historical costs of the product (the original cost of an asset when acquired by the company) and estimated salvages. Then an effort is made to know the expense for the accounting period by multiplying the units produced.

Proper Accounting courses will boost the journey of an individual. Learning them on their own will not be a wise choice. It can take more time and often frustrate the student.

Final words

Alright, now you have some basic knowledge about methods of depreciation. We hope that you take accounting courses to learn these methods and one more thing you should know is that companies use a standard approach to determine an asset's depreciation value over time. Also, industries are not limited to one option. They use different ways according to the needs of the times. If you are willing to take accounting courses to feel free to get in touch with Munimji.

Source - Understanding Methods of Depreciation

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