DEPRECIATION

Depreciation calculations necessary to determine the after-tax cash flow (income)

Concepts and Terminology Depreciation
Depreciation is the decline in the value of physical properties with time and use. In the
concept of accounting, depreciation is an annual cuts to income before taxes so that the effect of
time and use of the asset value can be represented in the financial statements of a company.
Depreciation is a non-cash expense that affect income taxes.
Depreciable property must meet the following conditions:
1. It should be used in an attempt to generate revenue or maintained.
2. Must have a certain useful life, and age should be longer than a year.
3. It is something that is used up, decay / destruction, obsolete, or experience a reduction in the
value of its original value.
4. No inventory, inventory or stock sale, or investment property.
Depreciable property grouped into:
- Real (tangible): it can be seen or held. Consisting of personal property (personal property) such
as machinery, vehicles, equipment, furniture and similar items. And real property (real
property) such as land and everything that is excluded from or growing or standing on the
ground
- Not Real (intangible): personal property such as copyrights, patents or franchise.
Definitions
Base, or base price: The initial cost to acquire the asset (purchase price plus tax),
including transportation costs and other expenses until the asset can be used according to its
function.
Base (price) adjusted initial price of the asset adjusted to increase or decrease the
allowed. For example: the cost of repairs of assets with a useful life of more than one year
increases the base starting price, and kecelakanna or theft of lowering the initial price.
Value (price) of books: the value of the property (assets) in accordance with the
accounting statements, which represent the amount of capital they invested in the asset. Equal to
the initial price (including any adjustment) is reduced with the reduction due to depreciation.
The market price: the prepaid amount a buyer to the seller of the assets in which each
benefit and act without coercion.

The period of recovery (recovery period): the number of years in which the base (price)
of an asset is recovered through the accounting process. Also called the useful life of the
(classical) or class or age class property.
The rate of return: the percentage for every year of the recovery, which is used to
calculate the annual depreciation deduction.
Residual value: the estimated value of the asset at the end of their useful life, an jula price
of an asset when no longer used for production processes by their owners.
Age benefit: the estimated period of use of the asset (property) in productive activities or to
generate revenue.

Depreciation Calculation Method

In general, the calculation method of depreciation is divided into two, namely:
1. The classic method, comprising:
a. Straight-line method (straight-line, SL)
b. Declining balance method (DB)
c. Methods sum-of-the-years-digits (SYD)
2. The modified accelerated cost recovery system (Modified Accelerated Cost Recovery
System, MACRS)

Straight Line Method

This method assumes that the asset has depreciated constantly every year during their useful
life.
Depreciation Method: - Linear
- Convex
- Concave

Declining Balance Method

Also called the constant percentage method or formula Matheson, assuming that the
annual depreciation costs are a fixed percentage of the book value of the early years.
Multiplying the book value of the previous year by a factor smaller than 1. Depreciation of a
fixed asset seen from the assumption that the new fixed assets is very large role in earning
the business, the role of fixed assets was increasingly narrowed in line with the aging of
fixed assets. The residual value or the residual value is not included in the calculation. The
only method of depreciation which uses book value.

Method Sum-of-the-Years-Digits (SYD)

To calculate the depreciation deduction method Angeles, figures relating to the

number for each year of age are allowed to be in first place in the order terbalik.kemudian,
the sum of those numbers ditentukan.Faktor depreciation for every year is the number of the
sequence listing the upside for the year divided by the number of numbers. Digits used in
the method of Dubai is residual useful life of the asset. Depreciation factor is the remaining
life of the assets divided by the total number of digits.
Declining balance transferred to a Straight Line
Due to declining balance method never reaches BV is zero, then are allowed to move away
from this method to the straight-line method so that SVN asset will be zero (or other
quantities that diingnkan). This method is also used to calculate the MACRS recovery rate.
Production Method-Unit
All depreciation methods discussed here are based on the time that has passed (years) in
which the theory states that the value of goods decreased largely a function of time. If the
decline in the value of most of fingsi use, depreciation based on the methods may not be
reflected in entuk years. Production-unit method used in such cases.