It’s the total cost of depreciation of an asset in a regular period of time till it exists. It shows the decreasing value of an asset over the period of time. Accumulated depreciation reflects in the balance sheet under accumulated account and this amount never ends at the end of a financial year, it carry forward to the next year.
We can calculate the depreciation amount in three different ways mentioned below:
Depreciation Amount = Total cost – Scrap value at the end of its life / Total useful life
Written down value method
Written down value method is also known as Reducing Balance Method and Diminishing Balance Method. In this method depreciation calculated on the Net Book Value of the respective asset. The rate of depreciation remains same for each year.
Depreciation Amount per year = Net Book value of previous year x 1/ No. of years
Declining balance method
In this method depreciation always charged higher for the first year and then this amount gradually decreases. In the first year the value of the asset is more than remaining years.
Depreciation value per year = Net Book Value – Residual value x Rate percentage
Sum of the years digits method
Sum of the years digits method based on the assumption that with regular use of the asset, its value degraded.
Depreciation Expense = Remaining useful life of the asset/ sum of years digits x Depreciate cost