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Calculation of Depreciation Using Other Methods

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Calculation of Depreciation Using Other Methods In this appendix we show the calculations of the depreciation expense amounts that we used in the chapter for the declining-balance and units-of-activity methods. Declining-Balance The declining-balance method produces a decreasing annual depreciation expense over the useful life of the asset. The method is so named because the computation of periodic depreciation is based on a declining book value (cost less accumulated depreciation) of the asset. Annual depreciation expense is computed by multiplying the book value at the beginning of the year by the declining-balance depreciation rate. The depreciation rate remains constant from year to year, but the book value to which the rate is applied declines each year. Book value for the first year is the cost of the asset because the balance in accumulated depreciation at the beginning of the asset's useful life is zero. In subsequent years, book value is the difference between cost and accumulated depreciation at the beginning of the year.
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