Depreciation Study Sheet

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Description: Depreciation is the periodic, systematic expiration of the cost of a company's fixed assets (except for land). Learn more about what depreciation is and is not in this tutorial.

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Business Math Terms
Straight-Line Depreciation
Units of Production Method
Sum-of-the-Years'-Digits Method
Declining Balance
Double Declining Balance
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Business Math Terms

An Asset is any 'thing' a business can own. Buildings, equipment, and vehicles are examples of assets that can be depreciated, while cash, bonds, and inventories are assets that are not depreciated.
Depreciation is the reduction in value of an asset over the course of its useful life. It can be calculated in several ways, using one of the methods described below.
Salvage value is the value of an asset after it has been fully depreciated. An asset's current book value must equal the salvage value at the end of its useful life.
A Depreciation Schedule is a chart that businesses use to show the reduction in value of an asset over the years, from its original purchase until the end of its useful life.
Accumulated Depreciation is an expense resulting from the asset's value reduction. It is the ongoing difference between the asset's original cost and its current value. It appears on the balance sheet as an expense in the Assets section.

Units of Production Method

Based on the asset's lifetime capacity to do work
'Units' can be measured in miles travelled, hours of operation, or widgets produced
Annual depreciation value changes depending on how much the asset is used
Given asset price (P), salvage value (V), units used in the current period U), and lifetime units capacity of the asset (L):
Annual Value = (P - V) (U / L)
Cramlet™ hint: After you've determined the depreciation amount for the first year, change the current book value to the new current book value and click the 'Next' button to recalculate for the second year (and so on).

Sum-of-the-Years'-Digits Method

Accelerated depreciation method that assumes an asset loses most of its value early in its life
Annual depreciation value decreases each year
Given asset price (P), salvage value (V), years of life (Y), year in question (Q), and the sum of the years of life (3 years is 1+2+3=6):
Annual Value = (P - V) ((Y + 1 - Q) / (Sum of Years))
Cramlet™ hint: After you've determined the depreciation amount for the first year, change the current book value to the new current book value and click the 'Next' button to recalculate for the second year (and so on).

Declining Balance

Accelerated depreciation method that assumes an asset loses most of its value early in its life
Annual depreciation value decreases each year
Depreciates an asset at one-and-one-half times the rate of straight-line depreciation
Given the current book value (C) and years of useful life (Y):
Annual Value = C (1.5 / Y)
Depreciation in any year will be the greater of the declining balance and straight-line amounts, leaving the current book value no lower than the salvage value
Cramlet™ hint: After you've determined the depreciation amount for the first year, change the current book value to the new current book value and click the 'Next' button to recalculate for the second year (and so on).

Double Declining Balance

Accelerated depreciation method that assumes an asset loses most of its value early in its life
Annual depreciation value decreases each year
Depreciates an asset at twice the rate of straight-line depreciation
Given the current book value (C) and years of useful life (Y):
Annual Value = C (2 / Y)
Depreciation in any year will be the greater of the double declining balance and straight-line amounts, leaving the current book value no lower than the salvage value
Cramlet™ hint: After you've determined the depreciation amount for the first year, change the current book value to the new current book value and click the 'Next' button to recalculate for the second year (and so on).