Answer:
Step-by-step explanation:
Depreciation is a way for businesses to allocate the cost of fixed assets, including buildings, equipment, machinery, and furniture, to the years the business will use the assets.
For book purposes,
Most businesses depreciate assets using the straight-line method.
To calculate depreciation using the straight-line method, subtract the asset’s salvage value (what you expect it to be worth at the end of its useful life) from its cost. The result is the depreciable basis or the amount that can be depreciated. Divide this amount by the number of years in the asset’s useful lifespan. Divide by 12 to tell you the monthly depreciation for the asset.
Depreciation can be calculated on a monthly basis in two different ways.
Determining monthly depreciation for an asset depends on the asset’s useful life, as well as which depreciation method you use.
i) Straight-Line Method
To do the straight-line method, you choose to depreciate your property at an equal amount for each year over its useful lifespan.
ii) Declining Balance Method
This method is used to recognize the majority of an asset’s depreciation early in its lifespan.
iii) Sum-of-the-years’-digits (SYD) Method
The method that takes an asset’s expected life and adds together the digits for each year is known as the sum-of-the-years’-digits (SYD) method. This is an accelerated method to calculate depreciation.
iv) Modified Accelerated Cost Recovery System (MACRS) Method
For tax purposes, businesses are generally required to use the MACRS depreciation method. It’s an accelerated method for calculating depreciation because it allows larger depreciation write-offs in the early years of the asset’s useful life.