Computing Depreciation Flashcards
1
Q
What ‘essential data’ is needed to compute depreciation?
A
- Historical cost of the asset.
- Expected life.
- Estimated residual value at the end of the useful economic life.
- Chosen method for calculation.
2
Q
What is the ‘straight line / fixed instalment’ method?
A
Gives the same amount of depreciation each year.
Formula: (cost - residual value) / useful economic life
Formula: Given percentage rate x historical cost
3
Q
What is the ‘diminishing / reducing balance’ method?
A
Annual depreciation charge =
Rate x written down value at start of year
4
Q
What is the ‘sum of year digits’ method?
A
Annual depreciation expense =
(years of useful life at start of year / sum of year digits) x depreciable amount.
