- Перевод — accumulated depreciation — с английского — на русский
- Accumulated Depreciation (Definition, Formula) | How to Calculate?
- Accumulated Depreciation Formula
- Example #1
- Example #2
- Relevance and Use
- Recommended Articles
- What is Accumulated Depreciation
- Depreciable Assets
- How to Calculate Accumulated Depreciation?
- Accumulated Depreciation Examples
- Features of Depreciation
- Causes of Depreciation
- Methods of Depreciation
- Objectives for Providing Depreciation or Accumulated depreciation
- Accumulated Depreciation Explained
- How to find accumulated depreciation
- Where does accumulated depreciation go on the balance sheet?
- Is accumulated depreciation an asset?
- How to calculate accumulated depreciation
- Straight-line depreciation
- MACRS Depreciation
- Is accumulated depreciation a debit or credit?
- CAPEX, Depreciation and Amortization in Financial Modeling
- Capital Expenditures (Capex)
- Forecasting Capex
- Depreciation and Amortization
- Forecasting Depreciation and Amortization
- Depreciation Calculator
- Straight-Line Depreciation Method
- Declining Balance Depreciation Method
- Sum of the Years' Digits Depreciation Method
- Units of Production Depreciation Method
- Partial Year Depreciation
- Salvage Value
- Accumulated Depreciation Formula | Calculator (with Excel Template)
- What is the Accumulated Depreciation Formula?
- Accounting Treatment
- Accumulated Depreciation Formula – Example #1
- Accumulated Depreciation Formula – Example #2
- Relevance and Uses of Accumulated Depreciation Formula
- Accumulated Depreciation Formula Calculator
Перевод — accumulated depreciation — с английского — на русский
Accumulated Depreciation (Definition, Formula) | How to Calculate?
The accumulated depreciation of an asset is the amount of cumulative depreciation that has been charged on the asset since the date of its purchase until the reporting date.
It is a contra-account, which is the difference between the purchase price of the asset and its carrying value on the balance sheet and is easily available as a line item under the fixed asset section in the balance sheet.
Accumulated Depreciation Formula
The calculation is done by adding the depreciation expense charged during the current period to the depreciation at the beginning of the period while deducting the depreciation expense for a disposed asset.
Accumulated depreciation formula = Accumulated depreciation at the start of the period + Depreciation expense for the period – Accumulated depreciation on assets disposed off
Let’s see some simple to advanced examples to understand the calculation better.
Let us consider the example of company A that bought a piece of equipment that is worth $100,000 and has a useful life of 5 years. The equipment is not expected to have any salvage value at the end of its useful life. The equipment is to be depreciated on a straight-line method. Determine the accumulated depreciation at the end of 1st year and 3rd year.
Below is data for calculation of the accumulated depreciation at the end of 1st year and 3rd year.
Since the company will use the equipment for the next 5 years, the cost of the equipment can be spread across the next 5 years. The annual depreciation for the equipment as per the straight-line method can be calculated as,
Annual depreciation = $100,000 / 5 = $20,000 a year over the next 5 years.
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Therefore, the calculation after 1st year will be –
Accumulated depreciation formula after 1st year = Acc depreciation at the start of year 1 + Depreciation during year 1
= 0 + $20,000
Therefore, after 2nd year it will be –
Accumulated depreciation formula after 2nd year = Acc depreciation at the start of year 2 + Depreciation during year 2
= $20,000 + $20,000
Therefore, after 3rd year it will be –
Accumulated depreciation formula after 3rd year = Acc depreciation at the start of year 3 + Depreciation during year 3
= $40,000 + $20,000
Let us calculate the accumulated depreciation at the end of the financial year ended December 31,2018, the following information:
- Gross Cost as on January 1, 2018: $1,000,000
- Acc depreciation as on January 1, 2018: $250,000
- Equipment worth $400,000 with acc depreciation of $100,000 has been disposed of on January 1, 2018
- The machinery is to be depreciated on the straight-line method over its useful life (5 years)
Below is the data for calculation of accumulated depreciation at the end of the financial year ended December 31, 2018
As per the question, Depreciation during a year will be calculated as,
Depreciation during a year = Gross cost / Useful life
= $1,000,000 / 5
Depreciation during a year= $200,000
Therefore, calculation of Accumulated depreciation as on December 31, 2018, will be,
Accumulated depreciation as on December 31, 2018, = Acc depreciation as on January 1, 2018, + Depreciation during a year – Acc depreciation for asset disposed of
Accumulated depreciation as on December 31, 2018= $250,000 + $200,000 – $100,000
Relevance and Use
From the point of view of accounting, accumulated depreciation is an important aspect as it is relevant for assets that are capitalized.
Assets that are capitalized provide value not only for a year but for more than one year, and accounting principles prescribe that expenses and the corresponding sales should be recognized in the same period according to the matching concept.
To cater to this matching principle in case of capitalized assets, accountants across the world use the process called depreciation.
Depreciation expense is a portion of the total capitalized asset that is recognized in the income statement from the year it is purchased, and for the rest of the useful life of the asset. Subsequently, it is the total amount of the asset that has been depreciated from the date of its purchase to the reporting date.
The amount of accumulated depreciation for an asset increases over the lifetime of the asset, as depreciation expense continues to be charged against the asset, which eventually decreases the carrying value of the asset. As such, it can also help an accountant to track how much useful life is remaining for an asset.
This article has been a guide to Accumulated Depreciation and its definition. Here we discuss the formula to calculate Accumulated Depreciation along with practical excel examples and downloadable excel templates. You may learn more about Accounting from the following articles –
What is Accumulated Depreciation
Accumulated depreciation is the total amount a company depreciates its assets, while depreciation expense is the amount a company's assets are depreciated for a single period. Essentially, accumulated depreciation is the total amount of a company's cost that has been allocated to depreciation expense since the asset was put into use.
Depreciable assets are those assets which fulfil the following conditions:
- It is expected to be used for more than one accounting period
- Have a limited useful life
- These are held for the purpose of production of goods and services and not for sale in the ordinary course of business
Depreciation Accounting covers all the assets, except for the following: —
- Forests, plantation and other similar regenerative natural resources
- Wasting assets
- Expenditure on research and development
How to Calculate Accumulated Depreciation?
To calculate accumulated depreciation, there are 3 important factors you need to consider.
Now that you the 3 factors to consider the accumulated depreciation, you can calculate using the below formal.
Here, the cost of assets is reduced with the estimated residual value of an asset at the end of its useful life to arrive the accumulated depreciation.
Accumulated Depreciation Examples
Machinery is purchased for Rs. 1,70,000 /- and at the end of the useful life of the machinery, the residual value is estimated at Rs. 70,000 /-. As per the estimation made by the company, the machinery will work for 5 years.
Considering the above example, the sum of expense to be allocated as depreciation in the accounting periods will be calculated as below:
|Acquisition Cost = Rs. 1,70,000. Less — Residual Value = Rs. 70,000. Depreciable Amount = Rs. 1,00,000. Estimated life of the asset = 5 Years. Depreciaton= Depreciable amount / Useful life of an asset = Rs. 1,00,000 / 5 = Rs. 20,000 Per year|
The Accumulated Depreciation of the machinery at the end of 5 years, assuming straight-line method of deprecation is Rs. 1,00,000 /- (Rs. 20,000 * 5)
Features of Depreciation
- Depreciation is a part of operating cost.
- It is a reduction in the value of an asset.
- The decrease in the value of an asset is gradual and continuous.
Causes of Depreciation
- Physical wear and tear
- Physical deterioration
- Expiry of legal rights
Methods of Depreciation
Basically, methods for providing depreciation are the formula, developed on a study of the behaviour of the assets over a period of years. This is done for readily computing the amount of depreciation suffered by different forms of assets. However, these methods should be applied only after carefully considering the nature of the asset and the conditions under which it is being used.
|Straight-line method of Depreciation||According to this method, an equal amount is written off every year during the working life of an asset so as to reduce the cost of the asset to its residual or nil value at the end of its useful life.SLM method results in a constant charge over the useful life if the residual value of the asset does not change|
|Written down value or diminishing balance method||Under this system, a fixed percentage of the diminishing value of the asset is written off each year so as to reduce the asset to its residual value at the end of its life.Written down value method results in a decreasing charge over the useful life.|
Following are other methods of depreciation:
- Sinking fund method
- Sums of the digit method
- Revaluation method
- Depletion method
- Machine hour rate method
- Replacement method
Objectives for Providing Depreciation or Accumulated depreciation
- Measurement of Correct Income
Depreciation should be charged for the proper estimation of periodic profit or loss. In case an enterprise does not account for depreciation on assets, it will not be considered a loss on the value of these assets due to their use in production and will not result in true profit or loss for a given period.
- True Position in Statements
The assets should be adjusted for depreciation charged in order to depict the actual financial position. If depreciation is not accounted, the assets would be disclosed in financial statements at a value higher than their true value.
- Funds to be Made Available for Replacement
Generation of adequate funds in the hands of the business for assets replacement at the end of its useful life. Depreciation is a good indication of the amount an enterprise should set aside to replace a fixed asset after its economic useful life is over. However, the replacement cost of a fixed asset may be impacted by inflation or other technological changes.
- Deriving of True Cost of Production
For ascertaining the cost of the production, it is necessary to include depreciation as an item of cost of production.
Accumulated Depreciation Explained
Accumulated depreciation is the total amount of depreciation expense that has been allocated to an asset since it was put in use.
For every asset you have in use, there is the “original basis” (how much it initially cost) and then there’s the “accumulated depreciation” (essentially, how much value it has lost, which is now considered an expense on your books).
When you record depreciation on a tangible asset, you debit depreciation expense and credit accumulated depreciation for the same amount. This shows the asset’s net book value on the balance sheet and allows you to see how much of an asset has been written off and get an idea of its remaining useful life.
How to find accumulated depreciation
To find accumulated depreciation, look at the company’s balance sheet. Accumulated depreciation should be shown just below the company’s fixed assets.
Some companies don’t list accumulated depreciation separately on the balance sheet.
Instead, the balance sheet might say “Property, plant, and equipment – net,” and show the book value of the company’s assets, net of accumulated depreciation.
In this case, you may be able to find more details about the book value of the company’s assets and accumulated depreciation in the financial statement disclosures.
Where does accumulated depreciation go on the balance sheet?
On most balance sheets, accumulated depreciation appears as a credit balance just under fixed assets. In some financial statements, the balance sheet may just show one line for accumulated depreciation on all assets.
To illustrate, here’s how the asset section of a balance sheet might look for the fictional company, Poochie’s Mobile Pet Grooming.
Other times, accumulated depreciation may be shown separately for each class of assets, such as furniture, equipment, vehicles, and buildings.
For example, if Poochie’s wanted to see the accumulated depreciation by asset type, the fixed asset section of the balance sheet might look this instead:
|Accumulated depreciation, equipment||(1,000)|
|Accumulated depreciation, van||(12,000)|
|Total Fixed Assets||49,000|
The accumulated depreciation number on the balance sheet is the cumulative total of all depreciation that has been taken as an expense on the income statement from the time the company acquired the asset until the date of the balance sheet.
Is accumulated depreciation an asset?
Accumulated depreciation is known as a “contra-asset account.” Contra asset accounts are negative asset accounts that offset the balance of the asset account they are normally associated with.
In a standard asset account, credits decrease the value while debits to the account increase its value. A Contra-asset works in the opposite direction: credits increase its value while debits decrease its value.
Accumulated depreciation is typically shown in the Fixed Assets or Property, Plant & Equipment section of the balance sheet, as it is a contra-asset account of the company’s fixed assets.
Showing contra accounts such as accumulated depreciation on the balance sheets gives the users of financial statements more information about the company.
For example, if Poochie’s just reported the net amount of its fixed assets ($49,000 as of December 31, 2019), the users would not know the asset’s cost or the amount of depreciation attributed to each class of asset.
By separately stating accumulated depreciation on the balance sheet, readers of the financial statement know what the asset originally cost and how much has been written off. It can also help them estimate the asset’s remaining useful life.
Accumulated depreciation is not a current asset, as current assets aren’t depreciated because they aren’t expected to last longer than one year.
How to calculate accumulated depreciation
Most businesses calculate depreciation and record monthly journal entries for depreciation and accumulated depreciation. The actual calculation depends on the depreciation method you use. Two of the most popular depreciation methods are straight-line and MACRS.
Using the straight-line method, you depreciation property at an equal amount over each year in the life of the asset.
For example, say Poochie’s Mobile Pet Grooming purchases a new mobile grooming van. The cost of the asset is $60,000. If the company depreciates the van over five years, Pocchie’s will record $12,000 of accumulated depreciation per year, or $1,000 per month.
Each month, the following transaction will be recorded in Poochie’s books:
For tax purposes, the IRS requires businesses to depreciate most assets using the Modified Accelerated Cost Recovery System (MACRS).
Under MACRS, the IRS assigns a useful life to different types of assets.
For example, office furniture is depreciated over seven years, automobiles get depreciated over five years, and commercial real estate is depreciated over 39 years.
MACRS depreciation is an accelerated method of depreciation, because allows business to take a higher depreciation amount in the first year an asset is placed in service, and less depreciation each subsequent year.
To calculate depreciation using MACRS, you first determine the asset’s classification, i.e., three-year property, five-year property, etc. Then you use the tables found in IRS Publication 946 to calculate depreciation for that year.
For more information on other depreciation methods, including double-declining balance method, the sum-of-the-year’s digits method, and units of production depreciation, check out What Is Depreciation? And How Do You Calculate It?
Is accumulated depreciation a debit or credit?
No matter which method you use to calculate depreciation, the entry to record accumulated depreciation includes a debit to depreciation expense and a credit to accumulated depreciation.
However, when your company sells or retires an asset, you’ll debit the accumulated depreciation account to remove the accumulated depreciation for that asset.
Going back to the mobile grooming van example above, say Poochie’s uses the van for five years. At the end of that five years, the van has been fully depreciated, so it appears in the Fixed Asset section of the balance sheet this:
|Accumulated depreciation, van||(60,000)|
Poochie’s decides it’s time to sell the old van and purchase a new one. When the van is sold, Poochie’s will need to credit the van’s asset account and debit the accumulated depreciation account to remove the original cost of the asset and its total depreciation from the books. The entry to remove the value of the asset would look this:
CAPEX, Depreciation and Amortization in Financial Modeling
Long-term (non-current) assets of the company have a long useful life (more than one year). When acquiring capital assets, we aim to use them within the business and not hold them for re-sale. These primarily consist of land, buildings, fixtures and fittings, equipment and machinery, needed to operate the business.
When performing a valuation or preparing a financial model, one set of essential assumptions we need to make, have to do with the long-term assets of the company, namely Property, Plant and Equipment (PPE), and Intangible assets.
For this purpose, we have to forecast capital expenditures for acquiring new assets (Capex), as well as depreciation and amortization.
We use such assumptions in both the Discounted Cash Flow (DCF) model and the Capitalization of Cash Flow model.
Capital Expenditures (Capex)
Capex is the total expenditure on the purchase of assets by the business in a given period. This includes both assets acquired and built by the company.
Capital assets provide value to the business over a period, longer than one reporting period.
CAPEX = Net Increase in PPE + Depreciation Expense
Net Increase in PPE = PPE Closing Balance — PPE Opening Balance
Capital expenditures are reflected in the Property, Plant & Equipment in Non-current assets on the Balance sheet. We also include the Capex, which we pay during the period in the Cash Flow Statement.
When we budget the capital expenditures, we need to be in line with the other financial projections for the company.
If we plan to increase sales revenue and increase the number of employees to achieve expansion, we need to plan Capex to support the growth.
This may include acquiring new offices, working stations, computers, and others, or even new production capacities, to achieve the sales target.
Capex estimations are never 100% sure. We are making an educated guess at their value, available information and knowledge, to arrive at a realistic estimate.
Sales revenue is a typical driver for Capex in financial modeling. We reference historical capital expenditures to project future spending on capital assets. Another method is to calculate an average and plan a fixed Capex amount per period. In some cases, we might have a detailed program for capital investments, which we can use in our forecast.
Keep in mind that Capex always comes before depreciation and amortization in our models, as the company cannot depreciate assets before acquiring them.
Depreciation and Amortization
Long-term assets are depreciated or amortized over time, and we present the remaining net book value (NBV) in the Balance sheet.
Depreciation occurs when the business uses up fixed assets. Physical assets used for more than a year degrade over time and lose value. The same happens with Intangible assets, where amortization is charged, to show how the asset is transferring its value into the business operations.
Different assets lose value at different rates, their intrinsic useful lives. Fixed asset registers help outline these differences and calculate appropriate depreciation and amortization expenses.
These schedules usually include information on the type of asset, depreciation method used, useful life, book value (cost of acquisition), accumulated depreciation, net book value (book value less accumulated depreciation), and others.
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Forecasting Depreciation and Amortization
To estimate the charges for depreciation and amortization, we start by understanding how assets reduce their value over time. We look into historical data, analyze the useful lives, applied depreciation methods, and the existence of long-lived assets buildings.
our understanding of the industry and the business, we can forecast depreciation various assumptions.
We can calculate the charge as a % of Capex, the Net Book Value of the assets, or even sales revenue, the historical trends we identify.
We can also roll a fixed amount, especially for companies with low to no capital expenditures, or apply a reasonable growth rate to the historical depreciation and amortization expenses.
If we notice that the charges have remained stable over the past periods, this may indicate the company uses a straight-line method to calculate depreciation and amortization. We can then calculate the expense as a percentage of the NBV of the assets, or roll a fixed amount.
When calculating our forecasted depreciation schedule, we need to ensure that the accumulated depreciation does not exceed the book value of the asset, as this will result in a negative net asset value, which is not possible in reality. To achieve this, we calculate accumulated depreciation as the smaller of:
Accumulated Depreciation Opening Balance + Current Year Depreciation Charge
Initial Book Value of the Asset
To emphasize the importance of setting proper assumptions, let us look at an example forecast of a Property, Plant and Equipment schedule.
You can download the full Excel model below the article.
We have historical data for the years 2017 to 2019. The task at hand is to forecast the PPE balance, CAPEX, and Depreciation expense for the next five years, to support management’s decision-making process. We will start with our assumptions table.
We have the Sales revenue and Depreciation expense for the past three years, as well as the forecasted Sales for the next five years. We do not have a detailed CAPEX plan, so we decide to forecast CAPEX as a percentage of Sales. Calculating a moving average of three periods, we arrive at the rates we will apply in our forecast.
As we do not have a detailed Depreciation schedule of all assets, we estimate the expense as a percentage of the opening balance of the net value of PPE.
Now that we have our assumptions figured out, we can apply the rates in our PPE Schedule.
This is enough for a five-year plan, as we understand it’s not possible to estimate the actual values, and it is OK if they deviate from our forecast.
However, we notice that if we calculate depreciation as a percentage of sales for the three years of available data, we get a more consistent rate.
Following the same logic, we prepare a second case for our PPE Schedule, applying the assumption that depreciation is calculated sales, and not opening balance of PPE.
The resulting PPE schedule is different from the first one we prepared. Let us examine the deviation and what impact it would have on our forecasted financial statements.
The changes apply to Depreciation expense and PPE closing balance, so let us look at how these two impact our forecast. We include the PPE closing balance in the Balance sheet.
By comparing the two cases, we see that we will have a consistently lower balance if we apply the second set of assumptions.
This will change our balance sheet lines for Non-current assets and Total assets and will have an impact on various financial analysis ratios we might calculate.
Looking at the Depreciation expense, in the second case, we are estimating a consistently higher charge, which will impact our bottom line, meaning we will be forecasting lower profits for all periods under our second set of assumptions. This deviation will also have an impact on several performance metrics.
We need to look further into the Property, Plant and Equipment of the company to support our choice of assumptions. It is important to remember that it is easy to perform the calculation part of an estimation. Arriving at the proper conclusion for the assumptions we select is the hard part; it is a form of art.
You can download the example as an Excel file at the bottom of the original article page.
Capital expenditures and Depreciation & Amortization are fundamental forecast assumptions in the financial modeling and valuation processes.
We need to estimate those metrics to forecast the fixed assets in the Balance Sheet, the depreciation and amortization expense in the Income Statement, and the Capex in the Cash Flow Statement.
We need to be aware that we can never achieve a 100% accuracy, and it’s easy to spiral down into calculations that are too detailed for the purpose at hand. To mitigate this risk, we have to obtain an adequate understanding of the industry and the company.
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home / financial / depreciation calculator
The following calculator is for depreciation calculation in accounting. It takes straight line, declining balance, or sum of the year' digits method. If you are using double declining balance method, just select declining balance and set the depreciation factor to be 2. It can also calculate partial-year depreciation with any accounting year date setting.
Conceptually, depreciation is the reduction in value of an asset over time, due to elements such as wear and tear. For instance, a widget-making machine is said to «depreciate» when it produces less widgets one year compared to the year before it, or a car is said to «depreciate» in value after a fender bender or the discovery of a faulty transmission.
For accounting in particular, depreciation concerns allocating the cost of an asset over a period of time, usually its useful life.
When a company purchases an asset, such as a piece of equipment, such large purchases can skewer the income statement confusingly.
Instead of appearing as a sharp jump in the accounting books, this can be smoothed by expensing the asset over its useful life. Within a business in the U.S., depreciation expenses are tax-deductible.
Straight-Line Depreciation Method
Straight-line depreciation is the most widely used and simplest method. It is a method of distributing the cost evenly across the useful life of the asset. The following is the formula:
|Depreciation per year =|
Declining Balance Depreciation Method
For specific assets, the newer they are, the faster they depreciate in value. As these assets age, their depreciation rates slow over time. In these situations, the declining balance method tends to be more accurate than the straight-line method at reflecting book value each year.
Depreciation per year = Book value × Depreciation rate
Double declining balance is the most widely used declining balance depreciation method, which has a depreciation rate that is twice the value of straight line depreciation for the first year.
Use a depreciation factor of two when doing calculations for double declining balance depreciation. Regarding this method, salvage values are not included in the calculation for annual depreciation.
However, depreciation stops once book values drop to salvage values.
Sum of the Years' Digits Depreciation Method
Similar to declining balance depreciation, sum of the years' digits (SYD) depreciation also results in faster depreciation when the asset is new. It is generally more useful than straight-line depreciation for certain assets that have greater ability to produce in the earlier years, but tend to slow down as they age.
|Depreciation for the Year = (Asset Cost — Salvage Value) × factor|
|1st year:||factor = n / (1+2+3+…+ n)|
|2nd year:||factor = (n-1) / (1+2+3+…+ n)|
|3rd year:||factor = (n-2) / (1+2+3+…+ n)|
|last year:||factor = 1 / (1+2+3+…+ n)|
|n is the asset's useful life in years.|
Units of Production Depreciation Method
With this method, the depreciation is expressed by the total number of units produced vs. the total number of units that the asset can produce.
|Depreciation per year =|
Partial Year Depreciation
Not all assets are purchased conveniently at the beginning of the accounting year, which can make the calculation of depreciation more complicated.
Depending on different accounting rules, depreciation on assets that begins in the middle of a fiscal year can be treated differently.
One method is called partial year depreciation, where depreciation is calculated precisely when assets start service and the convention (schedule) in which the depreciation occurs. Simply select «Yes» as an input in order to use partial year depreciation when using the calculator.
In regards to depreciation, salvage value (sometimes called residual or scrap value) is the estimated worth of an asset at the end of its useful life.
If the salvage value of an asset is known (such as the amount it can be sold as for parts at the end of its life), the cost of the asset can subtract this value to find the total amount that can be depreciated.
Assets with no salvage value will have the same total depreciation as the cost of the asset.
Accumulated Depreciation Formula | Calculator (with Excel Template)
Accumulated Depreciation Formula (Table of Contents)
What is the Accumulated Depreciation Formula?
It is the aggregate of the wear and tear of the fixed asset, considered from the time since the purchase and set up of a fixed asset till the time period into consideration. It is subtracted from the asset’s historical cost value to arrive at the net book value.
Accumulated depreciation account is a contra account, which means it is shown as the deduction to the asset value and, therefore, offsets the balance in the asset account it is associated with.
Whenever depreciation is recorded as an expense for the organization, the accumulated depreciation account is credited with the same amount – which will be shown against the cost of the asset and total cumulative depreciation of the asset.
The annual entry of the accumulated depreciation would below, in the journal books:
After the useful life of the machine is over:
Formula for accumulate depreciation is –
Accumulated Depreciation = ((Cost of Asset – Salvage Value)/ Life of the Asset) * No.of years
Let’s take an example to understand the calculation of the Accumulated Depreciation Formula in a better manner.
Accumulated Depreciation Formula – Example #1
Company ABC bought machinery worth $10,00,000, which is a fixed asset for the business. It has a useful life of 10 years and a salvage value of $1,00,000 at the end of its useful life.
Depreciation for the company is calculated using the straight-line method, which is $90,000 per year for the next 10 years until the value of the machinery becomes $1,00,000. Each year the accumulated depreciation account will increase by $90,000 per year.
Therefore, for example, at the end of 5 years, annual depreciation is $90,000 but the cumulative depreciation is 4,50,0000. This cumulative figure is the accumulated depreciation. It remains in the company’s accounts until the asset is sold.
Accumulated Depreciation is calculated using the formula given below
Accumulated Depreciation = ((Cost of Asset – Salvage Value)/ Life of the Asset) * No.of years
For 2nd Year
- Accumulated Depreciation = (($1,000,000 – $1,00,000) / 10 ) * 2
- Accumulated Depreciation = $1,80,000
For 5th Year
- Accumulated Depreciation = (($1,000,000 – $1,00,000) / 10 ) * 5
- Accumulated Depreciation = $450,000
For 9th Year
- Accumulated Depreciation = (($1,000,000 – $1,00,000) / 10 ) * 9
- Accumulated Depreciation = $810,000
Note here, that we are considering only 1 machinery for the given company. In reality, there are additions to this value in terms of any improvements, upgradations, or just buying a new piece. Each would have a different useful life and therefore the depreciation for each need to be calculated separately with the method followed since its setup. Below is an extract for a real company:
Accumulated Depreciation Formula – Example #2
Below is an Extract of the Effect of Depreciation, detailed Calculation is in the Excel Sheet.
- The highlighted box in red is the Net Block value you will see in the company’s balance sheet for 2017.
- This is the net of the accumulated depreciation, which is available over the cost and additions and reduced by the disposals
Below is the complete extract of the calculation of the Net Block, as of 2017.
- Notice, that the Tangible assets are all those assets that the company owns and can be seen as a part of the balance sheet.
For example, we have “Plant and Equipment” as a Tangible Asset. As on the date of 31st March, 17, Plant and Equipment have a total value of Rs 620 mn, to which the company added further Rs 255 mn worth of equipment which are classified under “ Additions during the year”.
Also, they sold or wrote off equipment worth Rs 18 mn. This added up to the total value of Plant and Equipment to Rs 857 mn.
To arrive at the Net Block, it becomes important to calculate the depreciation and reduce it from the Gross Block, which is a total of Rs 126 mn as highlighted above.
Step 1: Identify the Cost of the Fixed Asset on which Depreciation Needs to be Calculated
Identifying the fixed asset (s) of the business and those that are subject to a reduction in their values over the years due to usage, wear and tear or any other reason. This reduction in value can be termed as depreciation.
Step 2: Calculate the Depreciation Amount to be Considered
Estimate the useful life of the fixed assets and calculate the depreciation amount to be reduced from the asset value each year. The method of calculating the depreciation is mostly the straight-line method, which would mean the same amount of depreciation for one asset over the years of the useful life of the asset.
Step 3: Identifying the Year of the Balance Sheet is Prepared – to Arrive at the Accumulated Depreciation of the year
After calculating the depreciation amount for each year, the accumulated depreciation can be arrived at for a given year by adding up the annual depreciation amount for the previous years.
Relevance and Uses of Accumulated Depreciation Formula
Generally Accepted Accounting Policies (GAAP) require that depreciation expenses be charged to all fixed assets the estimated economic life of each.
The total amount of accumulated depreciation for a fixed asset will increase over time as depreciation continues to be charged for an asset over the life of it. The original cost of the asset is called the gross cost. When the original cost or the gross cost is reduced of any amount of accumulated depreciation and any impairment is called the net cost or carrying the cost.
Accumulated depreciation helps to understand the total depreciation in running the fixed asset from its acquisition asset to its disposition asset.
When this asset is to be sold or is obsolete, the total amount lying in the books of Accumulated depreciation is reversed along with the original cost of the asset, thereby eliminating all record of the asset from the balance sheet of the company.
Accumulated Depreciation Formula Calculator
You can use the following Accumulated Depreciation Formula Calculator
|Accumulated Depreciation =|
This is a guide to Accumulated Depreciation Formula. Here we discuss how to calculate Accumulated Depreciation Formula along with practical examples. We also provide an Accumulated Depreciation calculator with a downloadable excel template. You may also look at the following articles to learn more –