Depreciation is the systematic allocation of an asset's cost over its depreciable life. Business assets can be depreciated only if they meet the following basic requirements:
- The property must be used for business purposes to produce income.
- The property must have a useful life that can be determined, & this life must be longer than 1 yr.
- The property must be an asset that decays/gets used up/wears out/becomes obsolete/loses value to the owner from natural causes.
The general equation is:
There are 3 depreciation methods (that I understand so far :p):
1. Straight-line depreciation
2. Sum-of-years'-digits depreciation
3. Declining balance depreciation
Consider the following example:
B=$900, N=5yrs, S=$70
1. SL depreciation
2. SOYD depreciation
3. DB depreciation
Both methods achieve the same result (S=$70 in year 5) but the graphs would differ.
There, I kinda remember how to utilize these 2 methods. Mission accomplished :p