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- August 16, 2009 Updated
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Depreciation is the reduction in the value of an asset due to usage, passage of time, wear and tear, technological outdating or obsolescence, depletion, inadequacy, rot, rust, decay or other such factors. That's the term you can find in Wikipedia or any accounting related sites. In real world, depreciation is useful to determine what is the value of any (usually new) item after being used for some period of time. And it is not the same for different item. For example the value of electronics equipment is degraded rapidly compare to vehicle. And event different brand of vehicle will have different depreciation value over some period of time.
That kind of differentiation leads to different depreciation calculation or methods. There are several depreciation methods used to calculate it, and fortunately microsoft excel already include some of those method in its build in function, so you can use it directly.
In this excel template, I used three most common depreciation methods, those are :
Straight-line depreciation is the simplest and most-often-used technique, in which the company estimates the salvage value of the asset at the end of the period during which it will be used to generate revenues (useful life) and will expense a portion of original cost in equal increments over that period.
Sum-of-Years' Digits is a depreciation method that results in a more accelerated write-off than straight line, but less than declining-balance method. Under this method annual depreciation is determined by multiplying the Depreciable Cost by a schedule of fractions.
Many assets are most useful when they are new. This depreciation methods provide a higher depreciation charge in the first year of an asset's life and gradually decreasing charges in subsequent years. This may be a more realistic reflection of an asset's actual expected benefit from the use of the asset.
You can see how those depreciation calculated in table form. And as I mention before, all function already available in Excel, so I just use it. And I put a sample inside, but don't think the sample is real, because it is just dummy samples :-).
You can download the file here.
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