DEPRECIATION

WHAT IS DEPRECIATION ?

Depreciation is the systematic allocation of a plant asset’s cost from the balance sheet to depreciation expense on the income statement over the useful life of the asset. Here are some terms associated with depreciation: useful life a company’s estimate of the economic life of a plant asset. allocation assigning costs on some basis. depreciable amount cost minus the estimated salvage value. straight-line equal amounts of depreciation in each year of an asset’s useful life. accelerated same total amount of depreciation as straight-line, but greater amounts of depreciation in the early years of the asset’s life and then smaller amounts in the later years of the asset’s life.
double-declining balance method a form of accelerated depreciation. Two times the straight-line depreciation rate multiplied times the asset’s book value at the start of the year.
salvage value estimated residual or scrap value at the end of an asset’s useful life. residual value see salvage value. book value a plant asset’s cost minus its accumulated depreciation; carrying value. carrying value a plant asset’s cost minus its accumulated depreciation; book value.