depreciation

Question 1

Depreciation
Causes of Depreciation

Answer 1

A decrease in an asset’s value, may be caused by a number of other factors as well such as unfavorable market conditions, etc.
Machinery & equipment are some examples of assets that are likely to depreciate over a specific period of time.
Opposite of depreciation is appreciation which is increase in the value of an asset over a period of time (ex. Land).

2.Product Obsolescence
Physical Deterioration

Question 2

Depreciation Types

Answer 2

Straight Line Method-
In this method, an equal amount is written off every year during the working life of the asset to nil or its residual value at the end of its useful life.
The underlying assumption of this method is that the particular asset generates equal utility during its lifetime

Depreciation=(Cost of Asset-Scrap Value)
/Useful Life

Reducing Balance Method

Under this method, a fixed percentage of diminishing value of the asset is written off each year.
The annual charges of the depreciation decrease from year to year.
The annual charges of the depreciation decrease from year to year.
For First Year:
Depreciation=Acquisition value x Rate
For Second Year onwards:
Written Down Value (WDV)= (Total Cost – Depreciation)
Depreciation=Written down value* Rate