Details
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Improvement
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Status: Closed
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Minor
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Resolution: Later
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Trunk
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None
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None
Description
There are more 'depreciation methods' which are :-
(1) Activity Depreciation :- Activity depreciation methods are not based on time, but on a level of activity. This could be miles driven for a vehicle, or a cycle count for a machine. When the asset is acquired, we estimate its life in terms of this level of activity. Assume the vehicle above is estimated to go 50,000 miles in its lifetime. We calculate a per-mile depreciation rate: ($17,000 cost - $2,000 salvage) / 50,000 miles = $0.30 per mile. Each year, we then calculate the depreciation expense by multiplying the rate by the actual activity level.
Formula -
depreciation = (purchase cost - salvage value) * (current reading - previous reading) / expected life in distance unit
where
distance unit may be miles, kilometers, etc....
and current reading and previous reading are reading of the distance meter or distance count meter.
(2) Unit of Production Depreciation :- Units of production depreciation is used for assets for which it is better to measure the life in terms of the quantity of the resource you expect to extract from them, such as mines or wells. For example, the production capacity of an oil well is the number of barrels of oil you expect to extract from it. For machinery or equipment, you measure the production capacity in terms of the expected total hours of use.
You can enter the production capacity as the expected total production or expected total use. First, you enter the units of production depreciation method, production capacity, and unit of measure. You then enter the production each period to depreciate the asset according to actual use that period.
Formula -
depreciation = (purchase cost - salvage value) * (Production for the Period ) / expected production capacity
where
Production for the Period = current production count - previous production count