DEPRECIATION or to DEPRECIATE is to:
- Lower the price or estimated value of a property.
- Deduct from taxable income a portion of the original cost of a property
or any business asset over several years as the value of the asset decreases.
Depreciation is the lost in value of physical assets through its use. The yearly deposits into the depreciation fund are called depreciation charges. The depreciation fund is the portions of a given amount at the end of its useful life or the difference between the original cost of the asset and the sum in the depreciation fund is called the book value of the asset. At the end of the year.
WHEN TO DEPRECIATE?
You can apply this if you have properties, business, assets, jewelries, gadgets, vehicle or the likes.
ADVANTAGES AND IMPORTANCE OF DEPRECIATION
Depreciation
plays a very important role in a company's income and also in funding. There
are two basic reasons why depreciation is important, first because it is a way of
decreasing taxes that the government claims as the company does not have to pay
taxes on depreciation. This means that the company will benefit from this
because by applying this method it will enlarge the cash flow of the company.
Second it is a way of self finance for an organization.
DEPRECIATION SCHEDULE is an accounting procedure for determining the amount of value left in a piece of equipment.
DEPRECIATION SCHEDULE
There are many methods on how to get the depreciation but the commonly used and the simplest method in solving for the depreciation is the Straight-Line Depreciation.
To compute on the Depreciation the formula is:
DEPRECIATION = COST - SCRAP VALUE
To get the average yearly depreciation:
Rate of Depreciation = Depreciation
_____________Years (time)
You bought a tablet for P20,000 and has an estimated scrap value of P3,000 and a probable life of 5000 hours. Find the (a) Depreciation charge per operation. (b) Prepare a depreciation schedule showing the book value for each of the four years of the tablets life during with the hours of operation were: 2000, 1000, 700 and 1300.
Solving (a) :
P 20,000 - P3000 = P17,000
The depreciation is P17,000 then to get the rate of depreciation we divide this by the probable life of the tablet which is 5000 hours:
P17,000 / 5,000 hours = P3.4 per hour
(a) The rate of depreciation is P3.4
Solving (b):
TABLE:
YEAR DEPRECIATION CHARGE AMOUNT IN DEPRECIATION FUND BOOK VALUE AT END OF YEAR
0 0 0 20,000
1 6,800 6,800 13,200
2 3,400 10,200 9,800
3 2,380 12,580 7,420
4 4,420 17,000 3,000
________________________________________________________________________________________________________________
TOTAL: 17,000
Honestly, when I learned about this depreciation method it made me realized that applying this in the future when I already have my own properties and businesses is very helpful. By doing this I can monitor my properties and by doing also the depreciation schedule it also motivated me to be systematic and organized in handling my finances.
Checked by: Prof. Crisencio M. Paner
