Accounting Depreciation Rates
In accounting, depreciation is the decrease in the value of a capital asset over time. The asset's book value decreases from its original buying price to its overall residual value which will be retained when the maximum amount of use has been gotten out of the product.
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Straight Line
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In straight line depreciation, an equal amount is depreciated each year from the value of the capital asset, such that the value depreciates at a constant rate from its buy value to the end of its useful life. This method is used by companies that do not particularly care whether their capital assets are represented as a higher value at the earlier or later stages of ownership.
Declining Balance
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In declining balance depreciation calculations, there is a set rate of depreciation which is multiplied by the book value of depreciation, which causes the value of the capital to decrease at a constant declining rate. That is to say, it decreases faster at first, then the depreciation slows down as time passes. This is used by companies that want the value to go down faster but slow down once it has decreased a certain amount.
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Activity/Use Depreciation
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In activity or use depreciation, depreciation is based entirely on the use of a consumable item or a maintenance lifecycle. For instance, a car might be assumed to have a total number of miles that it can travel in a lifetime. As it has a buy value and an expected end value, the total depreciation per mile can be calculated, with an overall lifetime value that can be increased or delayed through regular maintenance.
Time and Production Depreciation
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Time and production depreciation are closely related to activity depreciation. In time or production depreciation, the amount of value that a capital object diminishes by depends on how many products have been produced by it or how long it has been running. An example of the first might be an ice cream machine, and an example of the second might be a mainframe computer.
Group and Composite Depreciation
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Group and composite depreciation are two similar but different methods of calculating the depreciation of multiple objects. With group depreciation, the depreciation is simply calculated for the number of objects as a single object, including their buy price, book value and residual value. With composite depreciation, the sum of the different objects is calculated, and then depreciation is applied that way. In both cases, straight line depreciation is used.
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References
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