Depreciation expense is used in accounting to allocate the cost of a tangible asset over its useful life. In other words, it is the reduction of value in an asset over time due to usage, wear and tear, and obsolescence. The four main depreciation methods mentioned will be explained in detail below.
#1 Straight-Line Depreciation Method
Depreciation Expense = (Cost – Salvage value) / Useful life
#2 Double Declining Balance Depreciation Method
Periodic Depreciation Expense = Beginning book value x Rate of depreciation
#3 Units of Production Depreciation Method
Depreciation Expense = (Number of units produced / Life in number of units) x (Cost – Salvage value)
#4 Sum-of-the-Years-Digits Depreciation Method
Depreciation Expense = (Remaining life / Sum of the years digits) x (Cost – Salvage value)
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Below is a break down of subject weightings in the FMVA® financial analyst program. As you can see there is a heavy focus on financial modeling, finance, Excel, business valuation, budgeting/forecasting, PowerPoint presentations, accounting and business strategy.
A well rounded financial analyst possesses all of the above skills!
Additional Questions & Answers
CFI is the global institution behind the financial modeling and valuation analyst FMVA® Designation. CFI is on a mission to enable anyone to be a great financial analyst and have a great career path. In order to help you advance your career, CFI has compiled many resources to assist you along the path.
In order to become a great financial analyst, here are some more questions and answers for you to discover:
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