depreciation methods gaap

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Four (4) factors that contribute to depreciation of fixed asset.

Depreciation is the allocation of the Depreciable amount of an asset over its estimated useful life. This allocated amount is charged against the income statement/Profit and Loss Account.

Factors that contribute to depreciation of a Fixed asset are:

  • Physical deterioration/Expected physical wear and tear.
  • Obsolescence/Economic factors.
  • Depletion (Natural resources such as mines)
  • Legal limit/Time factor.
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Diminishing Balance Method of depreciation-Meaning

Diminishing balance method is method of depreciating non current asset which is also known as the, `reducing installment system’, or `written down value method’,. This method applies depreciation as a fixed percentage to the balance of the net cost of the asset not yet allocated at the end of the previous accounting period. The percentage of depreciation is so fixed … Read the rest