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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