Question - Explain various methods of calculating depreciation in details
Answer -
Various methods of calculating depreciation are:
- Double declining method: This method is used to calculate book value, which is multiplied by a fixed depreciation rate.
- Units of production method: It is a way of charging depreciation on assets. This method is used when the asset’s value is closer to the units produces then years it is in used.
- Straight-line method: It can be calculated by dividing the difference between the cost of assets and its salvage value by the expected years to be used.
- Sum of year digit method: This method is based on the assumption that the assets productivity decreases with the passage of time.
- Sinking fund method: A technique which is used when the cost of replacing asset is too high.