Depreciation

Depreciation is based on 2 estimates :

Useful life of the asset Expected salvage value of the asset Hence depreciation = cost of the asset salvage value estimated useful life

Methods of depreciation 1.Straight line method / original cost method 2. Written down value method 3. Production units method

Issues in depreciation accounting

1. Computing depreciation for partial accounting periods 2. Revision of estimated lives and depreciation rates 3. Group depreciation

Methods of depreciation

1.Straight line method / original cost method Cost residual value Useful life
2.Written Down value method / reducing balance method 1- nth root of Residual value/ Cost where n = useful life in years

3. Production units method

Unit depreciation rate = Cost Expected output over the useful life A coal mine is expected to produce 12,50,000 tons of coal over its useful life. If the cost of acquisition of the mine Rs.1000000 then the depn rate = 1000000/ 1250000 tons = Rs.0.80/ton This rate is applied on the actual tons extracted every year.