What is accumulated depreciation?
It is an account that shows the total amount of depreciation expense for a fixed asset from the time of acquisition. This account is a depreciating account.
book value
machinery *
Accumulated Depreciation *
book value ***
Example (accumulated depreciation)
Suppose the machinery of a factory was purchased on 1/1/80 for 100 million Rials and its useful life is estimated to be five years. Therefore, 20 million rials are converted into expenses due to use:
12/29 Depreciation cost of machinery 2/000/000
Accumulated depreciation of machinery 2,000,000
Corrective registration of depreciation expense
In the above example, the calculation of book value after four years is as follows:
100/000/000 machines
Accumulated depreciation 80/000/000
Book value 20/000/000
Depreciation calculation methods
Straight line method or equal installments
Fixed rate descent method
The method of summing the digits of the years
Straight line method
In this method, it is assumed that the asset is used uniformly during its useful life. Therefore, the following formula is used to calculate depreciation in each period:
(Acquired full cost-depreciated asset)/(useful life in years) = annual depreciation
Example:
Depreciation if the depreciation value of said asset is zero at the end of useful life. :
If the finished price of the office furniture is 1,000,000 Rials and its useful life is 5 years, it is desirable to determine the depreciation cost of the office furniture:
200/000 = 5 ÷ 1/000/000 = years of useful life ÷ cost of the asset = depreciation cost
Depreciation cost 200/000
Accumulated depreciation 200/000
For the calculation of the depreciation cost of office furniture
Example:
Depreciation if the depreciation value of the said asset at the end of its useful life is 100/000 Rials:
Years of useful life ÷ (scratch value – cost of the asset) = depreciation cost
180/000 = 5 ÷ (100/000 – 1/000/000)
Depreciation cost 180/000
Accumulated depreciation 180/000
For the calculation of the depreciation cost of office furniture
Declining balance method
In this method, the depreciation expense is reduced every year compared to the previous year during the asset’s useful life, and to calculate it, it is enough to obtain the book value of the fixed asset multiplied by the fixed depreciation determined for that asset. The depreciation cost is as follows:
Depreciation rate * (depreciation reserve – cost of assets) = depreciation cost
Example (declining balance method)
If the total price of a car is 7,000,000 Rials and its depreciation rate is 25%, its accumulated depreciation is 2,000,000 Rials and the scrap value of the car is 2,500,000 Rials, the depreciation cost is as follows:
1/250/000 = 25% * ( 2/000/000 – 7/000/000 ) = depreciation cost
The method of summing the digits of years
In this method, the total cost of the asset is divided proportionally using the numbers of years of its useful life. For example, if the useful life of an asset is 5 years, the sum of the numbers of years of its useful life will be 15 years (15 = 5 + 4 + 3 + 2 + 1).
Example
Depreciation of machinery worth 30.000 Rials is as follows:
10/000 = 30/000 × 15/5 = first year depreciation
8/000 = 30/000 × 15/4= depreciation of the second year
6/000 = 30/000 × 15/3 = depreciation of the third year
4/000 = 30/000 × 15/2 = fourth year depreciation
2/000 = 30/000 × 1/15 = fifth year depreciation
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This post is written by Mahdi_kohsoltani