Basic Factors of Determination of Depreciation:
What are the basic factors of depreciation determination?
For calculation depreciation the basic factors are:
The original cost of the asset.
The estimated working life of the asset or the number of years the asset is expected to last.
The estimated residual or scrap value at the end of its life. It is the value which the asset will fetch when discarded as useless.
The amount to be spent periodically for repairs and renewals. If the repairs necessary to keep the asset in a proper state of efficiency are regularly carried out, the life of the asset is prolonged and the amount of annual depreciation is proportionately lowered.
The possibility of the asset becoming obsolete. If there are great chances of improvements being made in a particular asset on account of inventions, higher depreciation should be written off such an asset.
Usually engineers and experts give their opinion about these and they are accepted by businessmen. After getting information on all these points, it is easy to access the rate of depreciation.
You may also be interested in other articles from “accounting for depreciation” chapter:
- Definition and Explanation of Depreciation
- Causes of Depreciation
- Need for Depreciation
- Depreciation, Depletion and Amortization
- Difference Between Depreciation and Fluctuation
- Basic Factors of Determination of Depreciation
- Depreciation Methods / Methods for Providing Depreciation
- Fixed Installment Method / Straight Line Method / Original Cost Method
- Diminishing balance/written Down Value/Reducing Installment Method of Depreciation
- Annuity Method of Depreciation
- Depreciation Fund Method or Sinking Fund Method
- Insurance Policy Method of Depreciation
- Revaluation Method of Depreciation
- Sum of the Years’ Digits Method of Depreciation
- Double Declining Balance Method of Depreciation
- Depletion Method of Depreciation
- Basis of Use System of Depreciation
- Depreciation Of Various Assets
- Depreciation Accounting – General Questions and Answers
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