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ACS provides three methods to calculate depreciation. These formulas are based on Generally Accepted Accounting Procedures (GAAP). However, if these methods do not meet your organization’s needs, you can create a custom depreciation method. Here's a description of the three GAAP methods of calculating depreciation along with an example of each.

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Straight Line Depreciation

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Depreciation under this method is a function of time rather than use. This method uses a lump sum derived from a mathematical formula based on the asset’s useful life, historical cost, and salvage value.

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The accumulated depreciation is $600. This means that each year, a depreciation of $600 is applied to the asset.

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Double Declining Balance Depreciation

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The Double Declining Balance Depreciation method uses a percentage rate calculated on an asset’s useful life and then the percentage is doubled. This percentage is applied to the asset book value at the beginning of the year, but only until the amount is applied to the salvage value.

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Year

Depreciation

Accumulated Depreciation

Asset Book Value

1

$170.00

$170.00

$680.00

2

$136.00

$306.00

$544.00

3

$108.80

$414.80

$435.20

4

$87.04

$501.84

$348.16

5

$69.63

$571.47

$278.53

6

$55.71

$627.18

$222.82

7

$22.72*

$650.00

$200.00

8

$0

$650.00

$200.00

9

$0

$650.00

$200.00

10

$0

$650.00

$200.00

* The actual amount the formula returns is $44.56. However, this would return an asset book value of $482.62, which is less than the salvage value of $200.00. Once the salvage value is reached, the asset is no longer depreciated.

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Sum of Year’s Digits Depreciation

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This method uses a percentage rate calculated on fractions where the numerators are based on the number of years of an asset’s useful life, and the denominators are constants based upon the total sum of all the numerators added together. Because the denominator remains constant and numerator declines each year, the result is a decreasing depreciation expense.

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  • Historical Cost (H) — the original price or value of the fixed asset at the time of its acquisition.
  • Salvage Value (S) — the estimated dollar value an asset has after its useful life is expired.
  • Useful Life — the estimated time in years that a fixed asset has useful value for an organization. After this period, the asset is usually retired and sold for its salvage value.
  • Age (Y) — the age of the asset in years.

Wiki Markup*Denominator (N) --- \[ACS104:(U + 1)/2\] * U*

Sum of the Year’s Digits Depreciation uses the following formula:

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  • Item — P.A. System
  • Historical Cost — $10,000
  • Salvage Value — $500
  • Useful Life — 10 years

Wiki MarkupDenominator --- \Denominator — [(10 + 1)/2) * 10 = 55

Year 1
((10,000 - 500) * (10 - 1 + 1)) / 55 = $1727.27

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Year

Depreciation

Accumulated Depreciation

Asset Book Value

1

1727.27

1727.27

$8272.73

2

$1554.55

$3281.82

$6718.18

3

$1381.82

$4663.64

$5336.36

4

$1209.09

$5872.73

$4127.27

5

$1036.36

$6909.09

$3090.91

6

$863.64

$7772.73

$2227.27

7

$690.91

$8463.64

$1536.36

8

$518.19

$8981.83

$1018.17

9

$345.45

$9327.28

$672.72

10

$172.73

$9500.01*

$499.99

*Totals do not equal salvage value due to rounding. ACS does not allow the final asset book value to equal less than the salvage amount.

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