- Submitted By: Jason-Charlton
- Date Submitted: 08/08/2016 5:26 PM
- Category: Miscellaneous
- Words: 504
- Page: 3

Re: Depreciation Method Recommendation To use the straight line 6method of depreciation the salvage value of the item is subtracted from the cost of the item. Next this number is divided by that number by the expected life of the item. The straight line method has an evenly distributes the impact on net income and is very simple to calculate because the depreciation amount remains the same from year to year for every 1year of useful life of the items. The double declining balance method of depreciation uses 1200% of the straight line rate. The rate would be 40% using 8the double declining balance method if the straight line rate is 20%. The item’s beginning book value for the period is then multiplied by this amount. Use of 4the double declining balance method subtracts higher amounts of depreciation earlier in the life of items which lessens net income more during the useful lives first 1years. The units-of-output method of depreciation calculation is based on the amount that the item produces. The periods number of hours of equipment use is multiplied by the difference between 1the items cost and its salvage value. Then this number is divided by the total hours of performance estimated for the items1useful life. This method is helpful for companies that base the majority of their costs on production. The higher the production levels are the more that the depreciation amount grows. This allows for a higher deduction to net income with higher production levels and lower deductions for net income when production levels are lower. 5The sum-of-the-year’s-digits method of depreciation is calculating by finding the difference between a partial amount of the items cost and salvage value that it has 3at the end of its useful life. The numerator is equal to 2the number of years left in the items useful life and the denominator uses the sum of the year’s digits, to give you this partial amount. If 7the useful life of the item is 3 years the numerator would be 3 and the...

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