The Depreciation Meaning and Explanation With an Example to Tts Users?
Meaning of accumulated depreciation:
Depreciation has many of method. An accumulated depreciation is one of them. Accumulated depreciation meaning is a stand of an accumulated depreciation is actually made up cumulative depreciation for a fixed asset up to its lifespan. In this method depreciation charged on assets value and which is available to use. Assets purchase by the company and the analyst measure this machine productive lifetime then the value is divided by its lifetime and the resulted amount is depreciation for 1st year and then depreciation value of 1st year plus depreciation value of the second year which is resulted of a cumulative method after preceding next nine years. The cumulative value of depreciation is called accumulated depreciation.
Calculation of accumulated depreciation:
An accumulated depreciation is calculated over the market value of assets, salvage value if it has an accounts year and its estimated life. An asset’s value deducted by salvage value and divided by estimated life resulted value is accumulated depreciation ratio and the ratio is applied to the value of the assets resulted amount is accumulated depreciation.
The formula of Accumulated depreciation:
Accumulated depreciation formula is based on assets market value, salvage value (if there is salvage value) and its estimated life. Here the formula of accumulated depreciation;
(Assets Value – Salvage value) / Estimated life
Example of accumulated depreciation:
In the straight line method accumulated depreciation is calculated an asset’s value which is assets purchased price and the salvage value or scrap value which is the value of the asset what is the end of estimated life of assets then those two are deducted and the value is divided by estimated life which is the life of assets. There have several types of accumulated depreciation. Accumulated depreciation example is given below;
For example, A company buys a machine with a useful life 10 years for $ 2,20,000. The machine has a salvage value of $ 20,000 at the end of useful life. Useful life is estimated of analysts cost of the machine over the next 10 years. So the machine is providing service the company next 10 years. In straight-line depreciation method is calculated to cost of the machine (2,20,000) minus salvage value (20,000) divided by the estimated life (10). The calculated accumulated depreciated amount is $20,000 and the next year depreciation will be charged 20,000+20,000= $40,000 for accumulated depreciation. After that it will ongoing to ten-year cumulative figure prior accumulated depreciation value plus 20,000 till ten years.
The whole accounts effects to be shown in a tabular form which is given below;
After 10 years, a company pensioned their machine, and records the given entry to closing both the asset and its associated accumulated depreciation from its accounting records:
|Assets – Machinery||2,20,000|
Accumulated depreciation on the Balance sheet:
Accumulated depreciation appears on the balance sheet as liabilities but in Assets side, we deduct it upon the machinery in Assets and show the machine remaining year value. After that the value of assets are going to preceding year with balance such as using the above-given data;
Machinery value-2,20,000 ; salvage value-20,000 and estimated life – 10 and the calculated depreciation balance is 20,000. Now the balance sheet effects are
As at 31st December 2017
|(-) Salvage value||20,000|
Depreciation value is cumulatively increasing and similarly, the balance sheet assets value is depreciated for the preceding year and it will go until the machine value is zero and its important part of accounting or bookkeeping.