Depreciation Models / Methods

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Depreciation Methods are following:

1. Straight Line Method: This is one of the basic and simplest depreciation methods. Under this method, and equal amount of depreciation is charged for every year of useful life of the asset. It is also known as Equal Instalment Method.

2. Written-Down Value Method: This method is also known as ‘Diminishing Balance Method’. Under this method,a fixed percentage of written-down value is charged as depreciation for every year of useful life of the asset.

3.Sinking Fund Method: Under this method, a sinking fund is created by payment of periodic instalments so that there are sufficient funds for the purchase of a new asset.

4. Annuity Method: Under this method,the company cost of the asset is taken into account,which is ignored under other methods such as straight line method or written-down value method. Most of the time,it is not considered.

5. Insurance Policy Method: Under this method, an insurance policy which is equivalent to the value of the asset is calculated. Int exchange of payment of fixed periodic premium,the organization gets a set amount from the insurance company at the end of the policy.

6. Sum of Year Digit Method: Under this method, the annual depreciation is calculated using following formula.

7. Machine Hour Rate Method: Under this method., the estimated useful life of the asset is calculated in terms of hours. Depreciation for a particular period is calculated using the actual number of hours the asset was used.

8. Revaluation Method: In certain cases, the life estimates of the asset need to be revalued after periodic intervals. It is generally done at the date corresponding to balance sheet date. Depreciation equals to the difference between the revalued figure and book value of the asset.