Depreciation

Depreciation
 It represents the reduction in market value of an asset
due to age, wear and tear and obsolescence.
 The physical deterioration of the asset occurs due to
wear and tear with passage of time.
 Obsolescence occurs to due to availability of new
technology or new product in the market that is superior
to the old one and the new one replaces the old even
though the old one is still in working condition.
 The tangible assets for which the depreciation analysis is
carried out are construction equipments, buildings,
electronic products, vehicles, machinery etc.
 Scrap value
scrap value is the value of dismantled house
material
 Salvage value
salvage value is value at the end of utility period
without being dismantled.
Salvage value represents estimated market
value of the asset at the end of its useful
life.
It is the expected cash inflow that the
owner of the asset will receive by disposing
it at the end of useful life
salvage value is value at the end of utility period
without being dismantled.
Salvage value represents estimated market
value of the asset at the end of its useful
life.
It is the expected cash inflow that the
owner of the asset will receive by disposing
it at the end of useful life
 Book value

Book value is the value of asset recorded on

the accounting books of the firm at a given
time period.
It is generally calculated at the end of each
year. Book value at the end of a given year
equals the initial cost less the total
depreciation amount till that year.
 Depreciation
the equipment life is usually taken as 5 years
unless the equipment is very large and
expensive and is expected to a lot longer.
Common methods of calculation:
• Straight line (SL) method
• Sum of the years (SOY) method
• Double Decline Balance (DDB) method