DEPRECIATION EXPENSE

Depreciation expense

What is depreciation?

Definition of depreciation:

Depreciation is the systematic allocation of a 
the depreciable amount of an asset over its useful life.

1. Depreciation is a process of allocation not of valuation.
2. Depreciation for the year is the portion of the total
    charge under such a system that is allocated to the year.
3. Depreciable assets are sort of long term prepaid 
   expense accounts.
4. Usually Land has an indefinite life so land is
    not depreciated.

What is the difference between Depreciation,
Amortization and Depletion?

1. AMORTIZATION is a process of allocating 
   the amortizable cost of intangible assets.
2. DEPLETION is a process of allocating the cost 
   of using (decreasing) resources,such as mineral deposits.

Rate of depreciation:

Mostly in all the standards depreciation is calculated at the rate of 
10%,which means the useful life of the Non current asset is 
10 years, however in other cases the rate or useful life of the 
A noncurrent asset is mentioned in the question.

Straight-line depreciation:

This method recognizes equal periodic depreciation charges over the
 the useful life of a noncurrent asset,thereby making depreciation a function 
solely of time without regard to asset productivity, efficiency or usage.

In straight-line depreciation method depreciation of every 
the year is the same if full-year policy is in place.

FORMULA FOR CALCULATING  STRAIGHT LINE DEPRECIATION:

DEPRECIATION CHARGE =(cost-residual value)/useful life

FOR THE YEAR

RATE OF DEPRECIATION=100/USEFUL LIFE

OR ALTERNATIVE COULD BE

Depreciation for the year=(cost - residual value)*rate of depreciation

Where residual value is not given, depreciable cost and cost are 
the same amounts

Categories: Deprcaitionexpexpense, Depreciation, Depreciationdefination, straightlinedepreciation