What are the methods of depriciation?

Question

Accepted Answer

Depreciation methods include straight-line, declining balance, sum-of-the-years' digits, and units of production.

Straight-line method charges an equal amount of depreciation each year.
Declining balance method charges a higher rate of depreciation in the early years of an asset's life.
Sum-of-the-years' digits method charges a higher amount of depreciation in the early years of an asset's life.
Units of production method charges depreciation based on the actual usage of the asset.
Example: A company purchases a machine for $10,000 with a useful life of 5 years. Using the straight-line method, the annual depreciation expense would be $2,000.
Example: Using the declining balance method with a rate of 40%, the first year's depreciation expense would be $4,000.
Example: Using the sum-of-the-years' digits method, the depreciation expense for year 1 would be $4,000, year 2 would be $3,200, year 3 would be $2,400, year 4 would be $1,600, and year 5 would be $800.
Example: Using the units of production method, if the machine produces 10,000 units in year 1 and 20,000 units in year 2, the depreciation expense for year 1 would be $1,000 and year 2 would be $2,000.

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