Build a depreciation schedule for an asset using the straight line, declining balance or sum of the year’s digits method, with partial-year options.
Depreciation spreads the cost of an asset, such as a vehicle, machine or computer, over the years it is expected to be useful. Each year, part of the cost is recorded as an expense, and the asset’s book value falls. The depreciable amount is the cost minus the salvage value, the amount the asset is expected to be worth at the end of its useful life. The book value never drops below the salvage value.
The straight line method takes the same amount every year, which is the depreciable amount divided by the number of years. The declining balance method takes a fixed percentage of the remaining book value each year, so the charge is largest at the start and shrinks over time. The percentage is the depreciation factor divided by the number of years, so a factor of 2 gives the double declining balance method. The sum of the year’s digits method also front-loads the charge, using a fraction that falls each year: for a five year asset the first year takes 5 of 15 parts, the second 4 of 15, and so on.
Assets are rarely put into service on the first day of the accounting year. Turn on partial year depreciation, enter the start date and the date your accounting year begins, and the first year is shortened to the part of the year the asset is in use. The convention decides how that part is counted: by exact days, by months, by quarters, or as half a year. The half conventions count any part of a month or quarter as a half. The schedule then runs over one more accounting period, with the last one making up the rest.
Salvage value is the amount you expect the asset to be worth when you stop using it. Depreciation only spreads the cost minus the salvage value, so the book value ends at the salvage value.
It is the declining balance method with a depreciation factor of 2. Each year it takes twice the straight line rate of the remaining book value, so the charge is large in the early years.
Companies use it for assets that lose value fastest when they are new, such as vehicles and technology. The final year is adjusted so the book value ends at the salvage value.
It counts whole months from the start date to the end of the accounting year and treats any leftover part of a month as half a month. A full-month convention counts any leftover part as a whole month.
The first accounting period is shortened, so the total life of the asset spills into one more period. The extra last period takes the depreciation not yet recorded.
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