This document discusses various methods of depreciation. It defines depreciation as the decrease in monetary value of an asset over time due to use, wear and tear, or obsolescence. Straight line depreciation divides the difference between an asset's cost and salvage value by its useful life. Sum of years digits and double declining balance are accelerated methods where more depreciation is taken in early years of an asset's life. Key factors in calculating depreciation are useful life, salvage value, and depreciation method.

2. Depreciation
Submitted To:
“Ma’am Hira Aftab”
Submitted By:
“Group no. 03”
 Haider Javaid F13BB(119)
 Sofia Amjad F13BB(103)
 Hira Shahid F13BB(166)
 Zujajah Khurseed F13BB(128)

3. What is depreciation???
 Definition :
_”The monetary value of an asset decreases over time due to use, wear and tear
or obsolescence. This decrease is measured as depreciation. “_

4. * what property is depreciable???
* What cannot be depreciated?
1. Intangible assets
2. Assets used at home

5. Straight line depreciation method:
 Depreciation?
_”A method of computing amortization (depreciation) by dividing the difference
between an asset's cost and its expected salvage value by the number of years it
is expected to be used.”_

6. Formula:
 Straight line depreciation can be calculated using any of the following
formulas:
 Depreciation per annum=(cost-residual value)/useful life
 Depreciation per annum=(cost-residual value)/rate of depreciation

7. Cost:
Cost is the initial acquisition or construction costs related to the asset as well as
any subsequent capital expenditure
Residual Value:
Also known as its scrap value, is the estimated proceeds expected from the disposal of an
asset at the end of its useful life. The portion of an asset's cost equal to residual value
is not depreciated because it is expected to be recovered at the end of an asset's useful
life.
Useful Life :
the estimated time period that the asset is expected to be used starting from the date it is
available for use up to the date of its disposal or termination of use. Useful life is normally
expressed in units of years or months.
Rate of depreciation :
is the percentage of useful life that is consumed in a single accounting period. Rate of
depreciation can be calculated as follows:

10. 2. Sum Of Years –Digit Method
This method of depreciation is one of the accelerated depreciation techniques which
are based on the assumption that assets are generally more productive when they are
new and their productivity decreases as they become old.
The formula to calculate depreciation under SYD method is : SYD Depreciation =
Depreciable Base * Remaining useful life/ Sum of years digit

11. 3-key factors to consider while
calculating depreciation :
:
 * Useful life
 * Salvage value
 * Depreciation method

12. Depreciable Base :
Depreciable base is the difference between cost and salvage value of
the asset .
Sum of years digit :
Sum of years digit is the sum of the series :
1 , 2 ,3 , . . . . . , n ;
Where n is the useful life of the asset in years . Sum of years digits can
be calculated more conveniently using the following formula : Sum of
years digits = n(n+1)/2
Sum of years digits method can also be applied on monthly basis in
which case the above formula to calculate the sum of years digits
becomes much useful .

13. Example :
Use the sum of years digits method of depreciation to prepare a
depreciation schedule of the following asset : Cost = $45,000
Salvage value = $5,000
Useful life in years = 4
Asset is depreciated yearly = Yearly

14. Solution :
Sum of the years digits = 1+2+3+4 or 4(4+1)/2 = 20
Depreciable base = $45,000 - $5,000 = $40,000
Year Depreciable base Depreciation factor Depreciation Expense
Accumulated Depreciation
1 $40,000 4/10 4/10* 40,000=16,000 $16,000
2 $40,000 3/10 3/10* 40,000=12,000 $28,000
3 $40,000 2/10 2/10* 40,000=8,000 $36,000
4 $40,000 1/10 1/10* 40,000=4,000 $40,000

15. Advantages :
1. The SYD method as one of accelerated depreciation methods better
matches costs to revenues because it takes more depreciation in the early
years of an asset useful life compare to the straight line depreciation method
.
2. This method reflects more accurately the difference in usage of different
assets from one period to the other compare to the straight line depreciation
method.
3. Overall expense (including repairs and maintenance) charged for the use of
a fixed asset would be fairly constant.
Disadvantages:
1. SYD depreciation method might be more confusing and harder to compute
compare to the straight line one.
2. It has declining amounts of depreciation expenses.Declining amounts of
depreciation expense usually offsets by increasing the maintenance expense
which might smooth the income over the years .
3. If the asset has no residual value , it is very difficult to calculate the rate .

16. Double Declining Method:
Definition:
_” One of two common methods a business uses to account for the expense of a long-lived asset.
The double declining balance depreciation method is an accelerated depreciation method that
counts twice as much of the asset’s book value each year as an expense compared to straight-
line depreciation.”_

17. Double Declining Balance Depreciation Formulas
Using this method the Book Value at the beginning of each period is multiplied by a fixed
Depreciation Rate which is 200% of the straight line depreciation rate, or a factor of 2. To
calculate depreciation based on a different factor use our Declining Balance Calculator.
1.Straight-Line Depreciation Percent = 100% / Useful Life
2.Depreciation Rate = 2 x Straight-Line Depreciation Percent
3.Depreciation for a Period = Depreciation Rate x Book Value at Beginning of the Period

18. 1.Advantages:
2.Disadvantages: