Presentation By Haiqa Khan

Depreciation: Gradually decrease in the value of an asset .

Types of Depreciation
Straight Line
Diminishing
Sum of years digits depreciation

Same depreciation is charged over the entire useful life

Depreciation expense decreases at a constant rate as the life of

an asset progresses

Sum Of years digits methods

Depreciation charge declines by a constant amount as the life of the asset progresses

Calculation Of Sum of years digits method

Sum of the years' digits = 1+2+3+4+5 = 15

Depreciation for 2011 = ($100,000 - $10,000) x 5/15 = $30,000
Depreciation for 2012 = ($100,000 - $10,000) x 4/15 = $24,000
Depreciation for 2013 = ($100,000 - $10,000) x 3/15 = $18,000
Depreciation for 2014 = ($100,000 - $10,000) x 2/15 = $12,000
Depreciation for 2015 = ($100,000 - $10,000) x 1/15 = $6,000

Straight line

Advantage
Easy to calculate.
Suitable for depreciating assets that provide similar level of economic
benefits throughout their useful life (e.g. buildings).
Disadvantage
May not reflect the true pattern of asset's economic benefits

Diminishing

Advantage
Reducing balance method is acceptable for income tax purposes.
Reducing balance method is easy to understand and simple to implement.

Disadvantage
Reducing balance method charges heavy amount of depreciation in earlier
years.

Sum of years of digit method

Advantage
Easier to understand

Disadvantage
SYD depreciation method might be more confusing and harder to compute
compare to the straight line one