Sure! Let's assume we have an asset with a cost of $10,000 and a salvage value of $2,000, with a useful life of 5 years.
1. Straight-line Depreciation:
The annual depreciation expense for straight-line depreciation is calculated as follows:
Annual Depreciation Expense = (Cost - Salvage Value) / Useful Life
Annual Depreciation Expense = ($10,000 - $2,000) / 5
Annual Depreciation Expense = $8,000 / 5
Annual Depreciation Expense = $1,600
2. Double-Declining Balance Depreciation:
The annual depreciation expense for double-declining balance depreciation is calculated as follows:
Depreciation Rate = 2 / Useful Life
Depreciation Rate = 2 / 5
Depreciation Rate = 0.4 or 40%
Year 1 Depreciation Expense = Book Value at Beginning of Year * Depreciation Rate
Year 1 Depreciation Expense = $10,000 * 40%
Year 1 Depreciation Expense = $4,000
For subsequent years, the Book Value is reduced by the accumulated depreciation (depreciation expense from prior years).
3. Units of Production Depreciation:
The annual depreciation expense for units of production depreciation is calculated based on the usage of the asset. Let's assume the asset will produce 2,000 units over its useful life. The depreciation expense per unit is calculated as follows:
Depreciation Expense per Unit = (Cost - Salvage Value) / Total Units of Production
Depreciation Expense per Unit = ($10,000 - $2,000) / 2,000
Depreciation Expense per Unit = $8,000 / 2,000
Depreciation Expense per Unit = $4
To calculate the annual depreciation expense, we would multiply the number of units produced in a given year by the depreciation expense per unit.
Regarding the above question. Give me the example how to calculate or apply this three method in depreciation
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