Depreciation Essay

Topics: Depreciation, Generally Accepted Accounting Principles, Asset Pages: 1 (264 words) Published: March 20, 2013
Depreciation Essay

A method of accelerated depreciation, in which double the straight-line depreciation amount is taken the first year and then that same percentage, is applied to the un-depreciated amount in subsequent years is called double-declining-balance-method.

Depreciation methods that provide a higher depreciation charge in the first year of an asset’s life and gradually decreasing charges in subsequent years are called “accelerated depreciation methods”. This may be a more realistic reflection of an asset’s actual expected benefit from the use of the asset, which many assets are most useful when they are new. One popular accelerated method is the double-declining-balance-method. Under this method the book value is multiplied by a fixed rate and is the most common rate which is use.

When using the double-declining-balance-method the salvage value is not considered in determining the annual depreciation but the book value of the asset being depreciated is never brought below its salvage value, regardless of the method used. The process continues until the salvage value or the end of the asset’s useful life is reached. In the last year of depreciation a subtraction might be needed in order to prevent book value from falling below estimated scrap value.

Since double-declining- balance depreciation does not always depreciate an asset fully by its end of life some methods also compute a straight-line depreciation each year and apply the greater of two. This has the effect of converting from declining-balance depreciation to the straight-line depreciation at a midpoint in the asset’s life.
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