Methods of

Depreciation
ACCT 201
Content
● Straight-line
● Double-declining-balance
● Units of production
Depreciation
● Recognizes the use of an asset
● Salvage value
● The method used should match the
asset's usage pattern
Straight-line
● Most commonly used method
● Each period has the same amount of
depreciation expense
Company ABC
On January 1, 2013, Company ABC buys
machinery for $20,000. The machinery has
a salvage value of $3,000 and an estimated
useful life of 5 years.
Straight-line
Depreciation expense
(Asset cost - Salvage value) / Useful Life =
($20,000- $3,000) / 5 years = $3,400 per year

Depreciation expense $3,400

Accumulated depreciation $3,400
Double-declining-balance
● Accelerated method
● In the beginning periods, it recognizes
more depreciation but as the periods
continue it will produce less depreciation
on the asset
Company ABC
On January 1, 2013, Company ABC buys
machinery for $20,000. The machinery has
a salvage value of $3,000 and an estimated
useful life of 5 years.
Double-declining-balance

Year Book Value at Double the Annual

Beginning of X Straight-line = Depreciation
Period rate Expense

2013

2014

2015

2016

2017
Double-declining-balance

Year Book Value at Double the Annual

Beginning of X Straight-line = Depreciation
Period rate Expense

2013 ($20,000- 0) 0.50 $10,000

2014 (20,000-10,000) 0.50 $5,000

2015 (20,000-15,000) 0.50 $2,500 $2,000

2016 (20,000-17,500) 0.50 $1,250 0

2017 (20,000-18,750) 0.50 $625 0

Units of Production
● Recognizes a variety of depreciation on
an asset in each period
● Depends on the economic status of the
industry
Company ABC
On January 1, 2013, Company ABC buys
machinery for $20,000. The machinery has
a salvage value of $4,000 and an estimated
useful life of 5 years. Company ABC has
estimated capacity for 100,000 units.It's
been reported that it produced 20,000 units
in 2013 ,30,000 units in 2014, 20,000 units
in 2015, 10,000 units in 2016, and 5,000
units in 2017.
Units of Production
Years Cost per units Number of units Depreciation
(a) produced (b) expense
(a*b)

2013

2014

2015

2016

2017

(Cost- Salvage Value)

Total estimated units of production
Units of Production
Years Cost per units Number of units Depreciation
(a) produced (b) expense
(a*b)

2013 $0.16 20,000 $3,200

2014 $0.16 30,000 4,800

2015 $0.16 20,000 3,200

2016 $0.16 10,000 1,600

2017 $0.16 5,000 800

(Cost- Salvage Value) ($20,000-4,000) = $0.16 per

Total estimated units of production 100,000 hour
Extending Life
● Adding additions to the asset could help
increase its useful life.
● Through expanding the useful life one
must readjust the amount depreciated.
On January 1, 2013, Company ABC buys car
for $16,000. The machinery has a salvage
value of $2,000 and an estimated useful life
of 4 years.
Straight Line Method
Depreciation expense
(Asset cost - Salvage value) / Useful Life =
($16,000- $2,000) / 4 years = $3,500 per year

Depreciation expense $3,500

Accumulated depreciation $3,500
On January 1,2015, Company ABC added a
new paint job and stereo system to the car.
This increased the useful life by 3 years.
Depreciation expense
($16,000-$3,500-$3,500 =$9,000
(Asset cost - Salvage value) / Useful Life =
($9,000- $2,000) / 5 years = $1,400 per year

Depreciation expense $1,400

Accumulated depreciation $1,400
Review
What depreciation method expenses the
same amount for each year?
How would you find the depreciation rate
under the double declining method?
What is salvage value?
Questions?