Methods of Calculating Depreciation
There are different methods of calculating depreciation of assets. These include the following: Straight Line method Reducing balance method Sum-of-the-year digit method Service hour method Production output method Revaluation method Sinking Fund method Straight Line Method This method spreads the entire depreciable value of an asset equally over its useful life. Here, the depreciable value is divided by the number of economic useful years of the asset and allocated yearly. Suitability of this method The straight line method of depreciation is best suitable for assets as patent and leases. The reason is that for such assets, time is the important factor that is used to write off the carrying amount of these assets. Although some organizations use this method just because of its simplicity, yet it has some contentious shortcomings. The major disadvantage of this method is that It is not realistic as equal amount is charged every ye...