What's the depreciation formula
The depreciation formula for fixed assets is:
Depreciation of assets = original fixed assets * depreciation rate
Depreciation of fixed assets is defined as the apportionment of the original value of the fixed assets to the cost of the fixed assets over a period of time, so that the original value of the assets can be progressively converted to book value and apportioned over a period of time. The depreciation method is divided into three broad categories: average age method, double-declining and accelerated depreciation method。
Average age method:
It is also called the equivalent annuity method, the most commonly used method of depreciation, whereby the original value of the asset is apportioned equally to the cost of a certain period of time at the peak of the life of the fixed asset, and the same amount of the original value of the fixed asset is allocated to the expenditure of each year of the account in each account cycle, which results in the depreciation of each period。
The formula is as follows:
Depreciation = original fixed asset life (life)
Double decrease:
It is also referred to as a double-declining method of depreciation, which is equivalent to twice the amount accumulated in the prior period, and which is applied to double-declining as long as the net residual value of the assets is not zero。
The formula is as follows:
First period depreciation = original fixed asset value ÷ useful life (life)
Depreciation for the second and subsequent periods = accumulated depreciation for the previous period ÷2
Accelerating depreciation method:
The accelerated depreciation method, also referred to as the variable age method, is a depreciation method that optimizes the depreciation amount of a fixed asset, depending on the characteristics of the asset and the use of the fixed asset, thereby increasing the depreciation expenditure and thus the return on investment。
The formula is as follows:
First period depreciation = original fixed asset value ÷ useful life (life)
Depreciation for the second and subsequent periods = (original fixed assets - depreciated amounts) = remaining period
Knowledge development:
Depreciation rates are chosen by enterprises that implement accounting standards and, in general, are subject to nationally prescribed rates of depreciation, but national rates of depreciation may sometimes appear to be too stringent to meet the actual needs of the enterprise, which may be adjusted in the light of the particular circumstances of the enterprise, in conjunction with depreciation laws, to be more in line with the actual situation of the enterprise。
