[Commerce Class Notes] on Cost of Assets for Calculating Depreciation Pdf for Exam

Generally, when we talk about the cost of any particular asset, we tend to naturally think about the monetary aspects of the asset. However, the cost of assets for calculating depreciation includes several other key attributes as well, other than only money. As a result, there are numerous depreciation calculation methods used to analyse these costs. These costs, therefore, include several other components such as cost price, duties, handling expenses, among others. 

Therefore, through the ways of this article, these methods shall be discussed with respect to the cost of assets and more specifically the accumulated depreciation formula, among others. 

Depreciation Calculation Methods

With regards to calculating the decrease of the value of a company’s assets in a market, there are four primary methods that are used, namely: Straight Line Depreciation, Units of Production Depreciation, Sum of the Years’ Digits Depreciation and Declining Balance Depreciation. Each of these methods serves a distinct purpose whether with regards to calculating depreciation expense or something else. 

Therefore, these methods exist to carry out a number of depreciation formula accounting practices among firms and businesses in terms of their operations. Therefore, the formulas that are used in order to calculate the depreciation of an asset’s value in a market vary differently with the kind of method that is being used to calculate. 

As a result, the depreciation calculation formula is different for different methods. Three of the formulas are:

Straight-Line Depreciation Method= [frac{text{Cost of Asset – Residual Value}}{text{Useful Life of a Particular Asset}}]

Diminishing Balance Method= [frac{text{Cost of Asset * Rate of Depreciation}}{text{100}}]

Unit of Product Method = [frac{text{Cost of Asset – Salvage Value}}{text{Useful Life in the Form of Produced Units}}]

As can be understood, there is no universal depreciable value formula which can be used to calculate the depreciation of an asset’s cost over time. And, similar to this, there are other important aspects to depreciation as well, such as accumulated depreciation, depreciable cost and others. 

Accumulated Depreciation Formula 

In order to calculate accumulated depreciation of a company’s assets, the salvage value or the estimated scrap is subtracted from the asset’s initial cost. Therefore, through the proper implementation of this formula, the accumulated depreciation of an asset’s value in a market is determined. 

Therefore, the formula for the accumulated depreciation of an asset’s value is:

[frac{text{Cost of Asset – Salvage Value}}{text{ Life of Asset}}] * Numbers of Years

Depreciable Cost

While discussing the assets of depreciation calculation, the facet of depreciable cost plays a big role. Defined as an asset’s cost which is susceptible to be depreciated with time it is, in effect, the same as the asset’s acquisition cost, without its salvage value. 

Therefore, the Formula for the Depreciable Cost is:  Original Cost- Salvage Value

Book Value Formula Depreciation 

While discussing assets for depreciation calculation in a stable marketplace, it is imperative to discuss the book value of the asset. The book value is defined as the value of an item (asset) after the depreciation of the asset has been accounted for. Therefore, the significance of the book value of an asset lies with the asset’s allowance of depreciation over time. Similarly, the book value is a significant indicator of a business’s depreciation values and how much of them can be written off on the taxes of the business. Therefore, the book value of an asset is highly dependent on its ability to attract investors. 

 

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