Depreciation Schedule /Depreciation Rate/Straight Line Method/ የቋሚ ሃብቶቸ የአርጅና ቅናሽ አንዴት ይሰላል?
Depreciation is an accounting practice used to spread the cost of a tangible or physical asset over its useful life. It represents how much of the asset's value has been used up in any given accounting fiscal year.
The two main types of depreciation:
Physical depreciation - This is a reduction in the value of an asset over time, due to wear and tear.
Currency depreciation- This is a decrease in the value of a currency relative to other currencies.
Depreciation allows businesses to spread the cost of physical assets (such as a piece of machinery or a fleet of cars) over a period of years for accounting and tax purposes.
There are several different depreciation methods, including straight-line, declining, and various forms of accelerated depreciation. This video describes depreciation calculation using straight line method in Ethiopian tax law context and depreciation schedule is also prepared.
Some methods of accounting for depreciation require that the business estimate the "salvage value" of the asset at the end of its useful life.
In accounting, depreciation is considered a non-cash charge because it does not represent an actual cash outflow.
The entire cash outlay might be paid initially when an asset is purchased, but the expense is recorded incrementally for financial reporting purposes.
There are primarily 4 different formulas to calculate the depreciation amount and the calculation of the depreciation equation requires knowledge of some factors:
Cost of an Asset: Asset cost includes the amount paid to purchase such assets and other related expenses to bring such assets into a usable position, such as transportation, installation, taxes paid, etc.
Residual Value: Residual Value is the amount expected to be realized at the end of the useful life of an asset.
Useful life: Expected life of an asset up to which an organization can derive benefits from it.
Rate of Depreciation: It is the rate at which an organization should reduce the value of an asset in proportionate to benefits derived from such assets.
Please share, like and subscribe, thanks!