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Understanding Depreciation Methods

   

Added on  2020-05-08

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Depreciation refers to the reduction in the cost value of the fixed assets according to thedepreciation method used. The aim is to allow the provision to be made equal to the amount ofcost of fixed assets so that companies does not requires to expend much to purchase the newmachine. (Hussey and Ong, 2017). Things to be considered for depreciation are:Acquisition value of the asset: This value refers to the cost of the assets and paid at the time ofbuying the assets. There various things to be consider while determining the actual cost ofacquisition of the assets such any expenditure occurred to bring the fixed to the place ofoperation will added to the cost of assets but any small repair and maintenance will not be addedto the cost of the asset (Bebbington, Gray and Laughlin, 2001).Date when the asset is placed in the service: The date when the asset is first put to use is thestarting date of depreciation. Stock resister must be maintained in order to record this data.Salvage Value: Fixed assets are recorded at the historical cost basis i.e. at their purchased valueand some assets left with some value after complete depreciation has been provided this istermed as salvage value. Depreciation Method and rate: There are mainly three methods of depreciation they are: Straight line methodUnit of production methodDouble-declining balance method It must be decided by the management that which method has to be used and how muchrate of depreciation is to be applied on each asset (Bebbington, Gray and Laughlin, 2001).
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